Irinquiries@prestigebrands.com
Prestige Consumer Healthcare Inc.
660 White Plains Road – Ste 250
Tarrytown, NY 10591
Telephone: 914-524-6819
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x Annual
Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 for the Fiscal year ended March 31,
2006
or
o Transition
Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 for the transition period from ______
to
______
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PRESTIGE
BRANDS HOLDINGS, INC.
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Delaware
(State
or other jurisdiction of incorporation or organization)
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20-1297589
(I.R.S.
Employer Identification No.)
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001-32433
(Commission
File Number)
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(Exact
name of Registrant as specified in its charter)
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PRESTIGE
BRANDS INTERNATIONAL, LLC
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Delaware
(State
or other jurisdiction of incorporation or organization)
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20-0941337
(I.R.S.
Employer Identification No.)
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333-
117152-18
(Commission
File Number)
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(Exact
name of Registrant as specified in its charter)
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90
North Broadway
Irvington,
New York 10533
(Address
of Principal Executive Offices)
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(914)
524-6810
(Registrants’
telephone number, including area code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class:
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Name
on each exchange on which registered:
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Common
Stock, Prestige Brands Holdings, Inc.,
par
value $.01 per share
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New
York Stock Exchange
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Securities
registered pursuant to Section 12(g) of the Act: None
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Prestige
Brands International, LLC meets the conditions set forth in general instructions
(I) (1) (a) and (b) of Form 10-K and is therefore filing
this Annual Report on Form 10-K with the reduced disclosure
format.
Indicate
by check mark if each registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities
Act. Yes
o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant
to
Section 13 or Section 15(d) of the Act.
|
Prestige Brands Holdings, Inc.
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Yes
o
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No
x
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Prestige Brands International, LLC
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Yes
x
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No
o
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Indicate
by check mark whether the Registrants (1) have filed all reports required
to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the
preceding 12 months (or for such shorter period that the Registrants
were
required to file such reports), and (2) have been subject to such filing
requirements for the past 90 days. Yes x
No
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best
of Registrants’ knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. x
Indicate
by check mark whether the Registrant is a large accelerated filer,
an
accelerated filer, or a non-accelerated filer.
|
Large
Accelerated
Filer
|
Accelerated
Filer
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Non
Accelerated
Filer
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Prestige
Brands Holdings, Inc.
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X
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Prestige
Brands International, LLC
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X
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Indicate
by check mark whether either Registrant is a shell company (as defined
in Rule
12b-2 of the Act). Yes o
No
x
The
aggregate market value of voting and non-voting common equity held
by
non-affiliates computed by reference to the price at which the common
equity was
last sold as of the last business day of the Registrant’s most recently
completed second fiscal quarter ended September 30, 2005 was $409.6
million.
As
of
June 7, 2006, Prestige Brands Holdings, Inc. had 50,055,776 shares
of common
stock outstanding. As of such date, Prestige International Holdings,
LLC, a
wholly-owned subsidiary of Prestige Brands Holdings, Inc., owned 100%
of the
uncertificated ownership interests of Prestige Brands International,
LLC.
Documents
Incorporated by Reference
Portions
of the Registrant’s Definitive Proxy Statement for the 2006 Annual Meeting of
Stockholders (the "2006 Proxy Materials”) are incorporated by reference into
Part III of this Annual Report on Form 10-K.
TABLEOF
CONTENTS
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Page
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Part
I
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Item
1
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Business
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1
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Item
1A
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Risk
Factors
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16
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Item
1B
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Unresolved
Staff Comments
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22
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Item
2
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Properties
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22
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Item
3
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Legal
Proceedings
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23
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Item
4
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Submission
of Matters to a Vote of Security Holders
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24
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Part
II
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Item
5
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Market
for the Registrants’ Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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25
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Item
6
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Selected
Financial Data
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26
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Item
7
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Management’s
Discussion and Analysis of Financial Condition and Results
Of
Operations
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29
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Item
7A
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Quantitative
and Qualitative Disclosures About Market Risk
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45
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Item
8
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Financial
Statements and Supplementary Data
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45
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Item
9
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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45
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Item
9A
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Controls
and Procedures
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45
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Item
9B
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Other
Information
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46
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Part
III
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Item
10
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Directors
and Executive Officers of the Registrant
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46
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Item
11
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Executive
Compensation
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46
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Item
12
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Security
Ownership of Certain Beneficial Owners and Management and
Related
Stockholder Matters
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46
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Item
13
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Certain
Relationships and Related Transactions
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46
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Item
14
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Principal
Accounting Fees and Services
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46
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Part
IV
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Item
15
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Exhibits
and Financial Statement Schedules
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47
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Signatures
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52
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TRADEMARKS
AND
TRADE
NAMES
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Trademarks
and trade names used in this Annual Report on Form 10-K are
the property
of Prestige Brands Holdings, Inc. or its subsidiaries, as
the case may be.
We have utilized the ® and TM
symbols the first time each trademark or trade name appears
in this Annual
Report on Form 10-K.
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Part
I.
In
this Annual Report on Form 10-K, unless the context requires otherwise,
the
terms “we,” “us,” “our,” the “Company” and “Prestige Holdings” refer to Prestige
Brands Holdings, Inc., a Delaware corporation, with our consolidated
subsidiaries and any predecessor entities unless the context requires
otherwise.
The term “Prestige International” refers to Prestige Brands International, LLC
and its subsidiaries, unless the context requires otherwise. In addition,
in
this Annual Report on Form 10-K, any reference to a year (e.g., “2005”) means
our fiscal year ended March 31 of that year.
ITEM
1. BUSINESS
Overview
We
sell
well-recognized, brand name over-the-counter drug, household cleaning
and
personal care products. We operate in niche segments of these categories
where
we can use the strength of our brands, our established retail distribution
network, a low-cost operating model and our experienced management
team as a
competitive advantage to grow our presence in these categories and,
as a result,
grow our sales and profits. Our thirteen major brands, set forth
in the table
below, have strong levels of consumer awareness and retail distribution
across
all major channels. These brands accounted for approximately 93%
of our net
sales for 2006.
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Major Brands
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Market
Position
(1)
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Market Segment
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Market
Share
(1)
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ACV(1)
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(%)
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(%)
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Over-the-Counter
Drug:
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Chloraseptic®
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#1
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Liquid
Sore Throat Relief
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49.1%
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95%
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Clear
eyes®
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#2
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Redness
Relief
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14.4
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88
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Compound
W®
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#2
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Wart
Removal
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33.4
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88
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The
Doctor’s® NightGuard™
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#1
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Bruxism
(Teeth Grinding)
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99.4
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51
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Murine®
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#3
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Personal
Ear Care
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13.0
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65
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Little
Remedies®(2)
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N/A
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N/A
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70
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New-Skin®
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#1
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Liquid
Bandages
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36.6
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85
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Dermpoplast®
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#2
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Pain
Relief Sprays
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29.5
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68
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Household
Cleaning:
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Comet®
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#2
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Abrasive
Tub and Tile Cleaner
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30.4
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98
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Chore
Boy®
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#1
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Soap
Free Metal Scrubbers
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34.9
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40
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Spic
and Span®
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#6
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All
Purpose Cleaner
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2.4
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62
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Personal
Care:
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Cutex®
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#1
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Nail
Polish Remover
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28.8
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94
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Denorex®
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#4
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Medicated
Shampoo
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7.5
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68
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(1)
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Source:
Information Resources, Inc. “Market share” or “market position” is
based on sales dollars
in
the United States, as calculated by Information Resources
for the
52 weeks ended March 19, 2006. “ACV” refers to the All Commodity
Volume Food Drug Mass Index, as calculated by Information
Resources for
the 52 weeks ended March 19, 2006. ACV measures the weighted
sales volume of stores that sell a particular product out
of all the
stores that sell products in that market segment generally.
For example,
if a product is sold by 50% of the stores that sell products
in that
market segment, but those stores account for 85% of the
sales volume in
that market segment, that product would have an ACV of
85%. We believe
that ACV is a measure of a product’s importance to major retailers. We
believe that a high ACV evidences a product’s attractiveness to consumers,
as major national and regional retailers will carry products
that are
attractive to their customers. Lower ACV measures would
indicate that a
product is not as available to consumers because the major
retailers do
not carry products for which consumer demand may not be
as high. For these
reasons, we believe that ACV is an important measure for
investors to
gauge consumer awareness of the Company’s product
offerings.
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(2)
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Market
share information for market segments in which
Little Remedies
products compete is not available from Information
Resources.
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-1-
Our
products are sold through multiple channels, including mass merchandisers
and
drug, grocery, dollar and club stores. This channel mix allows us
to effectively
launch new products across all distribution channels and reduces
our exposure to
any single distribution channel. We focus our internal resources
on marketing,
sales, customer service and product development. While we perform
the production
planning and oversee the quality control aspects of the manufacturing,
warehousing and distribution of our products, we outsource the operating
elements of these functions to well-established, lower-cost, third-party
providers. This operating model allows us to focus our resources
on marketing
and product development, which we believe enables us to achieve attractive
margins while minimizing capital expenditures and working capital
requirements.
We
have
grown our brand portfolio by acquiring strong and well-recognized
brands from
larger consumer products and pharmaceutical companies, as well as
other brands
from smaller private companies. While the brands we have purchased
from larger
consumer products and pharmaceutical companies have long histories
of support
and brand development, we believe that at the time we acquired them
they were
considered “non-core” by their previous owners and did not benefit from the
focus of senior level management or strong marketing support. We
believe that
the brands we have purchased from smaller private companies have
been
constrained by the limited resources of their prior owners. After
acquiring a
brand, we seek to increase its sales, market share and distribution
in both new
and existing channels through our established retail distribution
network. We
pursue this growth through increased advertising and promotion, new
marketing
strategies, improved packaging and formulations and innovative new
products. Our
business and business model, however, are faced with various risks
that are
described in “Risk Factors” in Item 1A of this Annual Report on Form
10-K.
Competitive
Strengths
Diversified
Portfolio of Well-Recognized and Established Brands
We
own
and market well-recognized brands, many of which were established
over
60 years ago. Our diverse portfolio of products provides us with multiple
sources of growth and minimizes our reliance on any one single category.
We
provide significant marketing support to our brands in order to grow
our sales
and our long-term profitability. The industry categories in which
we sell our
products, however, are highly competitive. These markets include
numerous
national manufacturers, distributors, marketers and retailers, many
of which
have greater resources than we do and may be able to spend more aggressively
on
advertising and marketing, which may have an adverse effect on our
competitive
position.
Strong
Competitor in Attractive, Niche Categories
We
strategically choose to compete in niche product categories that
address
recurring consumer needs and that we believe are considered “non-core” to larger
consumer products and pharmaceutical companies. We believe we are
well
positioned in these categories due to the long history and consumer
awareness of
our brands, our strong market positions and our low-cost operating
model.
However, a significant increase in the number of product introductions
by our
competitors in these niche markets could have an adverse effect on
our sales and
operating results.
Proven
Ability to Develop and Introduce New Products
We
focus
our marketing and product development efforts on identifying underserved
consumer needs and then designing products that directly address
those needs.
Recent product introductions that addressed an identified consumer
need
include: Clear
eyes Triple Action Relief,
formulated to remove redness, moisturize and relieve irritation;
Clear
eyes for Dry Eyes ACR Relief,
for
long lasting relief from pollen, dust and ragweed;
Dermoplast Poison Ivy Treatment, a
non-irritating wash that controls the itch and removes oils that
cause the
rash;
Little Tummys Gripe Water,
a
herbal supplement with ginger and fennel for safe, gentle relief
of infant
colic, hiccups and upset stomach; Murine®
Homeopathic Allergy Eye Relief, Tired Eye Relief, and Earache
Relief,
formulated to promote the body’s natural ability to relieve allergy symptoms,
tired eyes and ear pain.
Although
line extensions and new product introductions are important to the
overall
growth of a brand, our efforts in this regard may reduce sales of
existing
products within that brand. In addition, certain of our product introductions
may not be successful, such as
Little Teethers® Oral Pain Relief Swabs, a
new
product under the
Little Remedies product
line, which we introduced in February 2005 and discontinued in February
2006.
-2-
Efficient
Operating Model
We
focus
our internal resources on marketing, sales, customer service and
product
development. While we directly manage the production planning and
quality
control aspects of the manufacturing, warehousing and distribution
of our
products, we outsource the operating elements of these functions
to
well-established, lower-cost, third-party providers. This approach
allows us to
benefit from third-party economies of scale and maintain a highly
variable cost
structure, with low overhead, limited working capital requirements
and minimal
investment in capital expenditures. During 2006, our aggregate gross
margin was
approximately 53%, while our general and administrative expenses
and our capital
expenditures represented less than 8% and 1% of net sales, respectively.
Our
operating model, however, requires us to depend on third-party providers
for
manufacturing and logistics services. The inability or unwillingness
of our
third-party providers to supply or ship our products may have a material
adverse
effect on our business, financial condition and results from
operations.
Management
Team with Proven Ability to Acquire, Integrate and Grow
Brands
Our
management team has significant experience in consumer product marketing,
sales,
product development and customer service. We have grown the business
through
acquisition, integration and expansion of the brands purchased. Unlike
many
larger consumer products companies which we believe often entrust
their smaller
brands to rotating junior employees, we dedicate experienced managers
to
specific brands, and these managers remain with those brands as they
grow and
evolve. Because the Company has fewer than 90 employees, we seek
more
experienced people to carry the substantial responsibility of brand
management.
Growth
Strategy
Our
growth strategy is to focus on our marketing, sales, customer service
and
product development efforts in order to continue to enhance our brands
and drive
growth. We plan to execute this strategy through:
| · |
Investing
in Advertising and
Promotion.
|
We
will
continue to invest in advertising and promotion to drive the growth
of our
brands. Our marketing strategy is focused primarily on consumer-oriented
programs that include media advertising, targeted couponing programs
and
in-store advertising. While the absolute level of marketing expenditures
differs
by brand and category, we typically have increased the amount of
investment in
our brands after acquiring them. For example, after the acquisition
of the
Little
Remedies
line of
products in October 2004, we expanded consumer promotion programs
and increased
advertising, which resulted in domestic annual brand sales growth
of
approximately 14% during 2006. Given the competition in our industry,
however,
there is a risk that our marketing efforts may not result in increased
sales and
profitability, or allow us to maintain these increased sales and
profitability
levels once attained.
| · |
Growing
our Categories and Market Share with Innovative New
Products
|
Our
strategy is to broaden the categories in which we participate and
our share
within those categories through ongoing product innovation. For example,
we
followed our successful launch in 2005 of an artificial tears product
called
Clear eyes for Dry Eyes
with
another innovative product called Clear
eyes® Triple Action Relief,
formulated to remove redness, moisturize and relieve irritation,
which
we
expect to increase the
Clear eyes
brand’s
market share in the eye care category. While there is a risk that
new product
introductions may at times be offset to varying degrees by reduced
sales of
existing products, our goal is to grow the overall sales of our
brands.
| · |
Increasing
Distribution Across Multiple
Channels
|
Our
broad
distribution base ensures that our products are well positioned across
all
available channels and that we are able to participate in changing
consumer
retail trends. Recently, we expanded our sales in wholesale club
stores,
introducing customized packaging and sizes of our products designed
specifically
for this higher growth channel. For example,
Comet
has
grown approximately 18% in this channel during 2006. There is a risk
however,
that we may not be able to maintain or enhance our relationships
across
distribution channels, which could adversely impact our sales and
profitability.
-3-
| · |
Growing
Our International
Business
|
We
intend
to increase our focus on growing our international business. International
sales
outside of North America represent approximately 3% of our net sales
for 2006.
In addition to Clear
eyes,
Murine
and
Chloraseptic
which
are currently sold internationally, we entered into a licensing agreement
with
The Procter & Gamble Company to market the Comet
brand in
Eastern Europe. Since a number of our other brands have previously
been sold
internationally, we intend to expand the number of brands sold through
our
existing international distribution network and are actively seeking
additional
distribution partners for further expansion into other international
markets.
There is a risk that increasing our focus on international growth
may divert
attention and resources from implementing our domestic business
strategy.
| · |
Pursuing
Strategic
Acquisitions
|
We
have
an active corporate development program and intend to continue to
pursue
strategic add-on acquisitions that enhance our product portfolio.
Our management
team has a long track record of successfully identifying, acquiring
and
integrating new brands and we seek to acquire highly complementary,
recognized
brands in attractive categories and channels. For example, during
2006, we
purchased the
Chore Boy
brand,
which competes in the scrubber and sponge sector of the household
cleaning
segment, and The
Doctor’s
brand,
which competes in the dental accessories sector of the oral health
category,
where we previously had a limited presence. We believe we have a
strong pipeline
of attractive acquisition candidates, and that our strong cash flow
will enhance
our ability to successfully pursue these acquisitions. We believe
our business
model will allow us to integrate these future acquisitions in an
efficient
manner, while also providing opportunities to realize significant
cost savings.
There is a risk, however, that our operating results could be adversely
affected
in the event we do not realize all of the anticipated operating synergies
and
cost savings from any future acquisitions, or we do not successfully
integrate
such acquisitions. In addition, provisions in our senior credit facility
and the
indenture governing our senior notes may limit our ability to engage
in
strategic acquisitions.
Market
Position
Approximately
74% of our net sales from 2006 were from brands with a number one
or number two
market position, which include
Chloraseptic,
Clear eyes,
Chore Boy, Comet,
Compound W,
Cutex, Dermoplast, The Doctor’s and
New-Skin.
See
“Market, Ranking and Other Data” on page 14 of this document for information
regarding market share and ACV calculations.
Our
History
Originally
formed in 1996, as a joint venture of Medtech Labs and The Shansby
Group, to
acquire over-the-counter drug brands from American Home Products,
our Company
has been led since 2001 by our chairman, and then chief executive
officer, Peter
Mann, and chief financial officer, Peter Anderson. Since 2001, our
Company’s
portfolio of brand name products has expanded from over-the-counter
drugs to
include household cleaning and personal care products. We have added
brands to
our portfolio principally by acquiring strong and well-recognized
brands from
larger consumer products and pharmaceutical companies. In February 2004,
GTCR Golder Rauner II, LLC, a private equity firm, acquired our business
from the original founders, as well as the Spic and Span business,
with Messrs.
Mann and Anderson continuing to lead the management team. In this
Annual Report
on Form 10-K, we refer to this acquisition as the “Medtech acquisition.” In
August 2005, Frank Palantoni joined the Company as President and
Chief Operating
Officer to broaden and enhance the senior management team and position
the
Company for continued growth. Mr. Palantoni brings extensive experience
in
consumer products marketing and administration. Effective April 2006,
Mr.
Palantoni was elected as President and Chief Executive Officer. Peter
Mann
remains Chairman of the Board.
In
April 2004, we acquired Bonita Bay Holdings, Inc., the parent holding
company of Prestige Brands International, Inc. which conducted its business
under the “Prestige” name. After we completed the Bonita Bay acquisition, we
began to conduct our business under the “Prestige” name. In this Annual Report
on Form 10-K,
-4-
we
refer
to the acquisition of Bonita Bay as the “Bonita Bay acquisition.” The Bonita Bay
portfolio included the following major brands:
Chloraseptic, Comet, Clear eyes
and
Murine.
In
October 2004, we acquired the rights to the
Little Remedies
brands
through our purchase of Vetco, Inc. Vetco is engaged in the development,
distribution and marketing of pediatric over-the-counter healthcare
products,
primarily marketed under the
Little Remedies
brand
name. Vetco’s products include
Little Noses®
nasal
products,
Little Tummy’s®
digestive health products,
Little Colds®
cough/cold remedies and
Little Remedies New Parents Survival Kits.
The
Little Remedies
products
deliver relief of common childhood ailments without unnecessary additives
such
as saccharin, alcohol, artificial flavors, coloring dyes or harmful
preservatives. We have successfully integrated this business into
the Company’s
operations. In this Annual Report on Form 10-K, we refer to the acquisition
of Vetco as the “Vetco acquisition.”
In
February 2005, we raised $448.0 million through an initial public offering
of 28.0 million shares of common stock. The net proceeds of the offering
were
$416.8 million after deducting $28.0 million of underwriters’ fees and $3.2
million of offering expenses. The net proceeds of $416.8 million
plus
$3.0 million from our revolving credit facility and $8.8 million of cash
on
hand were used to repay $100.0 million of our existing senior indebtedness
(plus
a repayment premium of $3.0 million and accrued interest of
$0.5 million), to redeem $84.0 million in aggregate principal amount
of our existing 9 1/4% senior subordinated notes (plus a redemption
premium of
$7.8 million and accrued interest of $3.3 million), to repurchase an
aggregate of 4.7 million shares of our common stock held by the investment
funds
affiliated with GTCR Golder Rauner, LLC (“GTCR”) and TCW/Crescent Mezzanine, LLC
(“TWC/Crescent”) for $30.2 million, and to contribute $199.8 million to our
subsidiary, Prestige International Holdings, LLC, which was used to redeem
all of its outstanding senior preferred units and class B preferred units.
We did not receive any of the proceeds from the sale of 4.2 million
shares by
the selling stockholders as a result of our underwriters exercising
their
over-allotment options.
In
October 2005, we acquired the rights to the “Chore
Boy®”
brand
of
metal
cleaning pads, scrubbing sponges, and non-metal soap pads. The brand
has over 84
years of history in the scouring pad and cleaning accessories categories.
We
believe this brand will benefit from our business model and create
synergies in
our household cleaning segment. In
this
Annual Report on Form 10-K, we refer to the acquisition of Chore
Boy
as the
“Chore Boy acquisition.”
In
November 2005, we acquired Dental Concepts, LLC (“Dental Concepts”), a marketer
of therapeutic oral care products sold under “The
Doctor’s®”
brand.
The business is driven primarily by two niche segments, bruxism (nighttime
teeth
grinding) and interdental cleaning. The
Doctor’s®
NightGuard™
brand
is the first and only FDA-approved OTC treatment for bruxism and
The
Doctor’s®
BrushPicks™
are
disposable interdental toothpicks. We expect that The
Doctor’s®
product
line will benefit from our business model of outsourcing manufacturing
and
increasing awareness though targeted marketing and advertising. Additionally,
we
anticipate benefits associated with our ability to leverage certain
economies of
scale and the elimination of redundant operations.
We have
successfully integrated this business into the Company’s operations. In this
Annual Report on Form 10-K, we refer to the acquisition of The
Doctor’s®
brand
as the
“Dental Concepts acquisition.”
Products
We
conduct our operations through three principal business segments:
(i)
over-the-counter drug, (ii) household cleaning and (iii) personal
care.
Over-the-Counter
Drug Segment
Our
portfolio of over-the-counter drugs consists primarily of
Clear eyes, Murine, Chloraseptic, Compound W,
the
Little Remedies
line of
pediatric healthcare products, The
Doctor’s
brand of
oral care products and first aid products such as
New-Skin
and
Dermoplast.
Our
other brands in this category include
Percogesic®,
Momentum®,
Freezone®, Mosco®, Outgro®,
Sleep-Eze®, Compoz®
and
Heet®.
In 2006,
the over-the-counter drug segment accounted for 54.3% of our net
sales.
-5-
Clear
eyes and Murine
The
Clear eyes
and
Murine
brands
were purchased from Abbott Laboratories in December 2002. Since its
introduction in 1968, the
Clear eyes
brand
has been marketed as an effective eye care product that helps take
redness away
and helps moisturize the eye.
Clear eyes
has an
ACV of 88%. In February 2006, the Company introduced Clear
eyes
Triple
Action Relief, and in March the Clear
eyes
for Dry
Eyes line was expanded with a new seasonal relief product, Clear
eyes
plus ACR
Relief. The
Murine
brand is
over 100 years old and its products consist of lubricating, soothing
eye drops
and ear wax removal aids. The brand was expanded into redness relief
in March
2006 with the introduction of Murine
for
Redness Relief. Additionally, a new line of Murine
homeopathic products was announced in January 2006 and launched in
April 2006.
Clear
eyes, Murine Eye Care and
Murine Ear Care
are
leading brands in the over-the-counter personal eye and ear care
categories. The
0.5 oz. size of
Clear eyes
redness
relief eye drops is the number two selling product in the eye redness
relief
category and
Clear eyes
is the
number two brand in that category with 14.4% market share. The ear
drop category
is composed of products that loosen earwax, treat trapped water (swimmer’s ear)
and treat ear aches.
Murine
is the
number three ear care brand with 13.0% market share.
Chloraseptic
Chloraseptic
was
acquired in March 2000 from Procter & Gamble and was originally
developed by a dentist in 1957 to relieve sore throats and mouth
pain.
Chloraseptic’s
6 oz. cherry liquid sore throat spray is the number one selling product
in
the sore throat liquids/sprays segment. The
Chloraseptic
brand
has an ACV of 95% and is number one in sore throat liquids/sprays
with a 49.1%
market share.
Historically,
Chloraseptic
products
were limited to sore throat lozenges and traditional sore throat
sprays that
were stored and used at home. Since its acquisition, the
Chloraseptic
product
line has been expanded to include portable sprays, gargle, mouth
pain sprays and
relief strips. The relief strip product was introduced in July 2003 and
combines popular dissolvable strips with
Chloraseptic’s
professionally recommended medicine. These product introductions
enable us to
market
Chloraseptic
products
as a system, encourage consumers to buy multiple types of
Chloraseptic
products, and increase volume for the entire product line.
Compound
W
We
acquired
Compound W
from
American Home Products in 1996. The
Compound W
brand
has a long heritage; its wart removal products having been introduced
almost
50 years ago. Compound
W
products
are specially designed to provide relief of common and plantar warts
and are
sold in multiple forms of treatment depending on the consumer’s need, including
Fast-Acting Liquid, Fast-Acting Gel, One Step Pads for Kids, One
Step Pads for
Adults and Freeze Off. We believe that
Compound W
is one
of the most trusted names in wart removal.
Compound
W
is the
number two wart removal brand in the United States with a 33.4% market
share and
an ACV of 88%. Since
Compound W’s
acquisition, we have successfully expanded the wart remover category
and
enhanced the value associated with the
Compound W
brand by
introducing several new products. In July 2003, we introduced a cryogenic
wart
removal product,
Compound W
Freeze
Off, which allows consumers to use a wart freezing treatment similar
to that
used by doctors.
Compound W
Freeze
Off has achieved high trade acceptance. We have also extended the
Compound W
brand by
introducing Fast Acting Liquid, One Step Pads for Kids, Waterproof
One Step Pads
and Invisible Strips Pads.
The
Doctor’s
The
Doctor’s®
is
a
line of products designed to help consumers who are highly engaged
in oral care
wellness to maintain good oral hygiene in between dental office visits.
The
product line was purchased from Dental Concepts, LLC in November
2005. The
business is driven primarily by two niche segments, bruxism (nighttime
teeth
grinding) and interdental cleaning. The
Doctor’s®
NightGuard™
brand
is the first and only FDA-approved OTC treatment for bruxism and
The
Doctor’s®
BrushPicks™
are
disposable interdental toothpicks. The
Doctor’s®
OraPik™
is
a
permanent, interdental pick and mirror. The entire line is distributed
in the
leading food, drug and mass merchandiser retailers and has experienced
sales
growth in excess of the dental accessories category.
-6-
Little
Remedies
We
acquired the Little
Remedies
brand in
November 2004.
Little Remedies
markets
a full line of pediatric over-the-counter products including:
Little
Noses
Little
Noses
was
first introduced to the market in 1992 and is marketed as a product
for the
relief of childhood nasal discomfort, containing no alcohol, saccharin,
artificial flavors or coloring dyes. The
Little Noses
product
line consists of saline nasal spray/drops, decongestant nose drops,
a nasal
aspirator for the removal of mucous from nasal passages and moisturizing
nasal
gel.
Little
Colds
Little
Colds
was
first introduced in 2001 and is marketed as a product for the relief
of
childhood cold symptoms, containing no alcohol, saccharin, artificial
flavors or
coloring dyes. The
Little Colds
product
line includes five different products consisting of (i) a multi-symptom
cold
relief formula, (ii) a dissolvable sore throat relief strips, (iii)
sore throat
relief
Saf-T-Pops®,
(iv) a
cough relief formula, and (v) a combined decongestant plus cough
relief
formula.
Little
Tummy’s
Little
Tummy’s
was
first introduced in 1994 and is marketed as a product for the relief
of
childhood stomach discomfort, containing no alcohol, saccharin, artificial
flavors or coloring dyes. The
Little Tummy’s
product
line consists of gas relief drops, laxative drops and a nausea relief
aid.
New-Skin
The
brand
has a long heritage, with the core product believed by management
to be over
100 years old. New-Skin
products
consist of liquid bandages for small cuts and scrapes that are designed
to
replace traditional bandages in an effective and easy to use form.
Each
New-Skin
product
works by drying and creating a thin, clear, protective covering when
applied to
the skin.
New-Skin
competes
in the liquid bandage segment of the first aid bandage category.
Within this
segment,
New-Skin
has a
36.8% market share and an 85% ACV.
Dermoplast
We
acquired
Dermoplast
from
American Home Products in 1996.
Dermoplast
is an
aerosol spray anesthetic for minor topical pain that was traditionally
a
“hospital-only” brand dispensed to mothers after giving birth. The primary use
in hospitals is for post episiotomy pain, post-partum hemorrhoid
pain, and for
the relief of female genital itching.
Since
Dermoplast’s
acquisition, we have introduced retail versions of the product, a
move that has
approximately doubled the size of the business. Dermoplast
enjoys
broad distribution across the drug and mass merchandise channels,
with an ACV of
68%. In addition to the traditional hospital uses mentioned above,
Dermoplast
offers
sanitary, convenient first aid relief for pain and itching from minor
skin
irritations, including sunburn, insect bites, minor cuts, scrapes
and burns.
Dermoplast is currently offered in two formulas: regular strength
and
antibacterial strength. In February 2006, Dermoplast
Poison
Ivy Treatment was introduced as the only poison ivy wash that also
contains
over-the-counter medicine.
Household
Cleaning Segment
Our
portfolio of household cleaning brands includes the
Comet,
Spic
and Span and Chore Boy
brands.
For 2006, the household cleaning segment accounted for 36.3% of our
net
sales.
Comet
We
acquired
Comet
from
Procter & Gamble in October 2001.
Comet
was
originally introduced in 1956 and is one of the most widely recognized
household
cleaning brands, with an ACV of 98%.
Comet
products
include different varieties of cleaning powders, sprays and cream,
some of which
are abrasive and some of which are non-abrasive.
Comet
competes
in the abrasive and non-abrasive tub and tile cleaner sub-category
of the
household cleaning category that includes abrasive powders and non-abrasive
liquids, sprays, creams and gels. The non-abrasive tub and tile cleaner
segment
is more fragmented and competitive than the abrasive sector and we
have
-7-
been
attempting to build momentum in our efforts to increase Comet’s
market
share in the non-abrasive tub and tile cleaner sector through focused
advertising and promotions, including free-standing insert coupons
and
television advertising.
Since
the
Comet
acquisition, we have expanded the brand’s distribution, increased advertising
and promotion and implemented focused marketing initiatives. We have
introduced
new fragrances, including Comet
Lavender
Powder Abrasive Cleanser and Comet
Orange,
extended the brand into underdeveloped demographic targets; and employed
new
packaging, including Comet
Soft
Cleanser Cream multi-pack and Comet
Soft
Cleanser Cream 8oz., to extend the brand into underdeveloped trade
channels and
to increase usage.
Chore
Boy
The
Chore
Boy
brand of
scrubbing pads and sponges was initially launched in the 1920's.
We acquired the
Chore
Boy
brand in
October 2005. Over the years the line has grown to include metal
and non-metal
scrubbers that are used for a variety of household cleaning tasks.
While many of
the brand’s products find use in the kitchen, with cooking clean up in
particular, they are also used in clean up jobs in the home work
shop, garage,
and other areas, including outdoor grill cleaning. The newest additions
to the
line, launched in 2004, consist of patented mesh materials that clean
most
surfaces without scratching. Chore
Boy
products
currently are sold in food stores, by mass merchandisers, and in
hardware and
convenience stores.
Spic
and Span
Spic
and Span
was
introduced in 1925 and is marketed as the complete home cleaner with
two product
lines consisting of dilutables and hard surface sprays for counter
tops and
glass, each of which can be used for multi-room and multi-surface
cleaning.
Since we acquired the brand from Procter & Gamble in January 2001, the
product line has grown from eight to 33 separate items and we have
expanded
distribution into new channels such as dollar stores.
Personal
Care Segment
Our
major
personal care brands include Denorex
dandruff
shampoo,
Cutex
nail
products and
Prell®
shampoo.
Other portfolio brands in this segment include
EZO®
denture
cushion,
Oxipor VHC®
skin-care lotion,
Cloverine®
skin
salve,
Zincon®
shampoo
and
Kerodex®
barrier
cream. In 2006, the personal care segment accounted for 9.4% of our
net
sales.
Denorex
We
acquired Denorex
from
American Home Products in February 2002. The
Denorex
brand
was originally launched in 1971 and has strong consumer awareness
as an
effective solution to scalp problems, as illustrated by its ACV of
68%.
Denorex
competes
in the therapeutic segment of the dandruff shampoo category and holds
a 7.5%
market share. The current lineup of
Denorex
products
includes Daily, for moderate dandruff sufferers and for those with
more serious
dandruff conditions, Extra Strength, Extra Strength with Conditioner,
Therapeutic Strength and Therapeutic Strength with Conditioner.
Cutex
Cutex
is an
established and trusted brand of nail polish remover.
Cutex,
with an
ACV rating of 94%, has four product lines: Quick and Gentle Liquid
Nail Polish
Remover,
Cutex Essential Care®
Advanced
Liquid,
Essential Care®
Advanced
Nail Polish Remover Pads and
Essential Care®
Twister
Nail Polish Remover.
Cutex
is the
number one brand in the nail polish remover category and has a leading
28.8%
market share. The main competition comes from a number of private
label brands,
which collectively have a 50.0% market share.
Prell
We
acquired Prell
from
Procter & Gamble in November 1999.
Prell,
which
competes in the shampoo category, was launched in 1947 and is a highly
recognized shampoo brand. The shampoo category is fragmented and
populated by
hundreds of brands. The fragmented nature of the shampoo category
places a
premium on distribution and brand recognition and positioning. We
believe
Prell
has a
loyal base of consumers seeking shampoo at the mid-price point
segment.
-8-
For
financial information concerning our business segments, please refer
to Item 7,
Management’s Discussion and Analysis of Financial Condition and Results of
Operation and Note 17 to the Consolidated Financial Statements included
elsewhere in this Annual Report on Form 10-K.
Marketing
and Sales
Our
marketing approach is based upon the acquisition and rebuilding of
established
consumer brands that possess, what we believe to be, significant
brand value and
unrealized potential. Our marketing objective is to increase sales
and market
share by developing and executing professionally designed, creative
and
cost-effective advertising and promotional programs. After we acquire
a brand,
we implement a brand building strategy that uses the brand’s existing consumer
awareness to maximize sales of current products and grows the brand
through
product innovation. This brand building process involves the evaluation
and
enhancement of the existing brand name, the development and introduction
of
innovative new products and the professional execution of support
programs. All
new product concepts are thoroughly researched before launch. To
ensure
consistent growth, brands are supported by an integrated trade, consumer
and
advertising effort, although advertising is used selectively. Recognizing
that
financial resources are limited, we allocate our resources to focus
on those
brands that show the greatest opportunities for growth and financial
success.
Brand priorities vary from year-to-year and generally revolve around
the
introduction of new items.
Customers
Our
senior management team and dedicated sales force strive to maintain
long-standing relationships with our top 50 domestic customers, which
accounted
for approximately 78% of our combined gross sales for 2006. Our sales
management
team consists of eight people, who focus on our key customer relationships.
We
also contract with third party sales management organizations that
interface
directly with our remaining customers and report directly to members
of our
sales management team.
We
enjoy
broad distribution across each of the major retail channels, including
mass
merchandisers, drug, food, dollar and club stores. The following
table sets
forth the percentage of gross sales to our top 50 customers across
our five
major distribution channels during 2004, 2005 and 2006:
|
|
|
Percentage of
Gross
Sales to
Top 50 Customers
(1)
|
||||
|
Channel of Distribution
|
|
2004
|
2005
|
2006
|
||
|
Mass
|
|
37.8%
|
|
39.1%
|
|
39.1%
|
|
Food
|
|
26.1
|
|
23.0
|
|
22.4
|
|
Drug
|
|
23.4
|
|
23.9
|
|
23.1
|
|
Dollar
|
|
7.2
|
|
9.4
|
|
9.6
|
|
Club
|
|
4.6
|
|
2.8
|
|
3.3
|
|
Other
|
|
0.9
|
|
1.8
|
|
2.5
|
(1) Includes
estimates for some of our wholesale customers that service more
than one
distribution channel.
Due
to
the diversity of our product line, we believe that each of these
channels is
important to our business and we continue to seek opportunities
for growth in
each channel. We have recently expanded our sales in dollar stores
by
introducing customized packaging and sizes of our brand name products
for these
channels.
Our
principal customer relationships include Wal-Mart, Walgreens, CVS,
Target and
Dollar General. For 2006, our top five and ten customers accounted
for
approximately 41% and 51% of our gross sales, respectively. No
single customer
other than Wal-Mart accounted for more than 10% of our gross sales
in the most
recent fiscal year and none of our other top five customers accounted
for less
than 3.0% of our gross sales for the most recent fiscal year. Our
top fifteen
customers each purchase products from virtually all of our major
product
lines.
Our
strong customer relationships provide us with a number of important
benefits
including minimizing slotting
-9-
fees
and
shortening payment time after invoicing. In addition, these relationships
help
us by facilitating new product introductions and ensuring prominent
shelf space.
We believe that management’s emphasis on strong customer relationships, speed
and flexibility, leading sales technology capabilities, including
electronic
data interchange, e-mail, the Internet, integrated retail coverage,
consistent
marketing support programs and ongoing product innovation will
continue to
maximize our competitiveness in the increasingly complex retail
environment.
The
following table sets forth a list of our primary distribution channels
and our
principal customers for each channel:
|
Channel
of Distribution
|
|
Customers
|
|
Mass
|
|
Kmart
|
|
|
|
Meijer
|
|
|
|
Target
|
|
|
|
Wal-Mart
|
|
Drug
|
|
CVS
|
|
|
|
Rite
Aid
|
|
|
|
Walgreens
|
|
Food
|
|
Ahold
|
|
|
|
Albertsons
|
|
|
|
Kroger
|
|
|
|
Publix
|
|
|
|
Safeway
|
|
|
|
Supervalu
|
|
Dollar
|
|
Dollar
General
|
|
|
|
Family
Dollar
|
|
|
|
Dollar
Tree
|
|
Club
|
|
Costco
|
|
|
|
Sam’s
Club
|
|
|
|
BJ’s
Wholesale Club
|
Outsourcing
and Manufacturing
In
order
to maximize our competitiveness and efficiently allocate our resources,
third
party manufacturers fulfill all of our manufacturing needs. We
have found that
contract manufacturing maximizes our flexibility and responsiveness
to industry
and consumer trends while minimizing the need for capital expenditures.
We
select contract manufacturers based on what we believe to be the
best overall
value, and we take into account factors such as depth of services,
the
management team, manufacturing flexibility, regulatory compliance
and
competitive pricing. We also conduct thorough reviews of each potential
manufacturer’s facilities, quality standards, capacity and financial stability.
We generally only purchase finished products from our
manufacturers.
Our
primary contract manufacturers provide comprehensive services,
from product
development through the manufacturing of finished goods, and are
responsible for
such matters as production planning, product research and development,
procurement, production and quality testing. The manufacturer is
responsible for
almost all capital expenditures and works with us to develop improved
packaging
and promotional offers. In most instances, we provide our contract
manufacturers
with guidance in the form of product development, performance criteria,
regulatory guidance, sourcing of packaging materials and monthly
master
production schedules. This management approach results in minimal
capital
expenditures and maximizes our cash flow, which is reinvested to
support our
marketing initiatives or used for brand acquisitions and/or to
repay outstanding
indebtedness.
We
have
relationships with over 40 third-party manufacturers. Of those,
our top 10
manufacturers produce items that accounted for 81% of our gross
sales for 2006.
We do not have long-term contracts with the manufacturers of products
that
account for approximately 34% of our gross sales for 2006. Not
having
manufacturing
-10-
agreements
for these products exposes us to the risk that the manufacturer
could stop
producing our products at any time, for any reason or fail to provide
us with
the level of products we need to meet our customers’ demands. Should one or more
of our manufacturers stop producing product on our behalf, it could
have a material adverse effect on our business, financial condition
and results
from operations
Our
largest suppliers of manufactured goods for 2006 included Vijon
Laboratories,
Abbott Laboratories, Kolmar Canada, Procter & Gamble, OraSure
Technologies and Humco Holdings. We enter into manufacturing agreements
for a
majority of our products by sales volume, each of which vary based
on the
third-party manufacturer and the products being supplied. These
agreements
explicitly outline the manufacturer’s obligations and product specifications
with respect to the brand or brands being produced. The manufacturing
agreements
are typically one to seven years in duration and prices under these
agreements
generally are established annually and subject to quarterly adjustments
for
changes to raw material and packaging costs. Labor cost increases
are generally
limited to increases in the consumer price index. All of our other
products are
manufactured on a purchase order basis. Orders are generally based
on batch
sizes and result in no long-term obligations or commitments.
Warehousing
and Distribution
We
receive orders from retailers and/or brokers primarily by electronic
data
interchange, or EDI, which automatically enters each order into
our systems and
then routes the order to our distribution center. The distribution
center will,
in turn, send a confirmation that the order was received, fill
the order and
ship the order to the customer, while sending a shipment confirmation
to us.
Upon receipt of the confirmation, we send an invoice to the
customer.
We
manage
product distribution in the mainland United States through one
facility located
in St. Louis, owned and operated by The Arthur Wells Group. The Arthur
Wells Group handles all finished goods storage through their Warehousing
Specialists subsidiary (“WSI”) and all customer shipments through their
Nationwide Logistics subsidiary (“NLI”), as well as the receipt and disposition
of customer returns.
The
Storage and Handling Agreement provides that, for a term of thirty-six
months,
WSI shall provide warehouse services, including without limitation,
storage,
handling and shipping with respect to our full line of products.
The
Transportation Management Agreement provides that, for a term of
thirty-six
months, NLI shall provide complete management services, claims
administration,
proof of delivery, procurement, report generation, and automation
and tariff
compliance services with respect to our full line of products.
The WSI and NLI
agreements started in June 2005 and August 2005, respectively.
If
Warehousing Specialists or Nationwide Logistics abruptly stopped
providing
storage or logistics services to us, our business operations could
suffer a
temporary disruption while a new services provider was engaged.
We believe this
process could be completed quickly and any temporary disruption
resulting
therefrom would have an insignificant effect on our operating results
and
financial condition. However, a
serious
disruption, such as a flood or fire, to our distribution center
could damage our
inventory and could materially impair our ability to distribute
our products to
customers in a timely manner or at a reasonable cost. We could
incur
significantly higher costs and experience longer lead times associated
with
distributing our products to our customers during the time that
it takes for us
to reopen or replace our distribution center. As a result, any
such serious
disruption could have a material adverse effect on our business,
financial
condition and results from operations.
Competition
The
business of selling brand name consumer products in the over-the-counter
drug,
household cleaning and personal care categories is highly competitive.
These
markets include numerous manufacturers, distributors, marketers
and retailers
that actively compete for consumers’ business both in the United States and
abroad. Many of these competitors are larger and have substantially
greater
resources than we do, and may therefore have the ability to spend
more
aggressively on advertising and marketing and to respond more effectively
to
changing business and economic conditions. If this were to occur,
our sales,
operating results and profitability would be adversely affected.
-11-
Our
principal competitors vary by industry category. Competitors in
the over-the
counter drug category include Pfizer, maker of
Visine®,
which
competes with our
Clear eyes
and
Murine
brands;
McNeill-PPC, maker of
Tylenol®
Sore
Throat, which competes with our
Chloraseptic
brand;
Schering-Plough, maker of
Dr. Scholl’s®,
which
competes with our
Compound W
brand;
Johnson & Johnson, maker of
BAND-AID®
Brand
Liquid Bandage, which competes with our
New-Skin
brand;
GlaxoSmithKline, maker of
Debrox®,
which
competes with our
Murine
brand;
and Sunstar America, Inc maker of GUM®
line
of
oral care products, which competes with The
Doctor’s
brand.
Competitors
in the household cleaning category include Henkel, maker of
Soft
Scrub®,
and
Clorox, maker of
Tilex®,
each
of which competes with our
Comet
brand,
Clorox’s
Pine
Sol®,
which
competes with our
Spic
and Span
brand
and 3M, maker of Scotch-Brite and O-Cel-O®,
which
competes with our Chore
Boy
brand.
Competitors
in the personal care category include Johnson & Johnson, maker
of
T-Gel®
shampoo, which competes with our
Denorex
brand,
and Del Laboratories, maker of
Sally Hansen®,
which
competes with our
Cutex
brand.
We
compete on the basis of numerous factors, including brand recognition,
product
quality, performance, price and product availability at retail
stores.
Advertising, promotion, merchandising and packaging, the timing
of new product
introductions and line extensions also have a significant impact
on customers’
buying decisions and, as a result, on our sales. The structure
and quality of
the sales force, as well as consumption of our products affects
in-store
position, wall display space and inventory levels in retail outlets.
If we are
unable to maintain or improve the inventory levels and in-store
positioning of
our products in retail stores, our sales and operating results
will be adversely
affected. Our markets also are highly sensitive to the introduction
of new
products, which may rapidly capture a significant share of the
market. An
increase in the amount of product introductions by our competitors
could have a
material adverse effect on our sales and operating results.
Regulation
Product
Regulation
The
formulation, manufacturing, packaging, labeling, distribution,
importation, sale
and storage of our products are subject to extensive regulation
by various
federal agencies, including the Food and Drug Administration (“FDA”), the
Federal Trade Commission (“FTC”), the Consumer Product Safety Commission
(“CPSC”), the Environmental Protection Agency (“EPA”), and by various agencies
of the states, localities and foreign countries in which our products
are
manufactured, distributed and sold. Regulatory issues are handled
internally by
management and an experienced FDA consultant. Our operations team
works closely
with our third-party providers on quality matters and makes frequent
site
visits. When and if the FDA chooses to audit a particular facility
that is
manufacturing one of our products, we are notified immediately
and updated on
the progress of the audit as it proceeds. As part of our quality
control
process, we monitor the compliance of our manufacturers with FDA
regulations and
perform periodic audits to ensure such compliance. Our management
intends to
continue this procedure across all of our brands. This continual
evaluation
process ensures that our manufacturing processes and products are
of the highest
quality and in compliance with all known regulatory requirements.
If we or our
manufacturers fail to comply with applicable regulations, we could
become
subject to significant claims or penalties, which could have a
material adverse
effect our business, financial condition and results from operations.
In
addition, the adoption of new regulations or changes in the interpretations
of
existing regulations may result in significant additional compliance
costs or
discontinuation of product sales and may have a material adverse
effect on our
business, financial condition and results from operations.
All
of
our over-the-counter drug products are regulated pursuant to the
FDA’s monograph
system. The monographs, both tentative and final, set out the active
ingredients
and labeling indications that are permitted for certain broad categories
of
over-the-counter drug products. When the FDA has finalized a particular
monograph, it has concluded that a properly labeled product formulation
is
generally recognized as safe and effective and not misbranded.
A tentative final
monograph indicates that the FDA has not made a final determination
about
products in a category to establish safety and efficacy for a product
and its
uses. However, unless there is a serious safety or efficacy issue,
the FDA will
typically exercise enforcement discretion and permit companies
to sell products
conforming to a tentative final monograph until the final monograph
is
published. Products that comply with either final or tentative
final monograph
standards do not require pre-market approval from the FDA.
-12-
In
accordance with the Federal Food, Drug and Cosmetic Act (“FDC Act”) and FDA
regulations, the manufacturing processes of our third party manufacturers
must
also comply with the FDA’s current Good Manufacturing Processes (“cGMPs”). The
FDA inspects our facilities and those of our third party manufacturers
periodically to determine if we and our third party manufacturers
are complying
with cGMPs.
Other
Regulations
We
are
also subject to a variety of other regulations in various foreign
markets,
including regulations pertaining to import/export regulations and
antitrust
issues. To the extent we decide to commence or expand operations
in additional
countries, we may be required to obtain an approval, license or
certification
from the country’s ministry of health or comparable agency. We must also comply
with product labeling and packaging regulations that may vary from
country-to-country. Government regulations in both our domestic
and
international markets can delay or prevent the introduction, or
require the
reformulation or withdrawal, of some of our products. Our failure
to comply with
these regulations can result in a product being removed from sale
in a
particular market, either temporarily or permanently. In addition,
we are
subject to FTC and state regulations, as well as foreign regulations,
relating
to our product claims and advertising. If we fail to comply with
these
regulations, we could be subject to enforcement actions and the
imposition of
penalties which could have a material adverse effect on our business,
financial
condition and results from operations.
Intellectual
Property
We
own a
number of trademark registrations and applications in the United
States, Canada
and other foreign countries. The following are some of the most
important
registered trademarks we own in the United States:
Chloraseptic, Chore Boy, Clear Eyes, Cinch, Cloverine, Comet, Compound W,
Compound W Freeze-Off, Compoz, Cutex, The Doctor’s, Denorex, Dermoplast,
Essential Care, Freezone, Heet, Kerodex , Little Remedies, Longlast,
Momentum,
Mosco, Murine, New-Skin, Outgro, Oxipor, Percogesic, Prell, Simple
Pad,
Simplegel, Sleep-Eze, Spic and Span, Vacuum Grip
and
Zincon.
In
addition, we have an exclusive royalty bearing license to use the
EZO
trademark in the United States for the ten year term ending on
December 31, 2012, at which time we shall have the right to purchase the
trademark for $1,000. While we own the U.S. trademark registration
for
Kerodex,
we have
an obligation to pay royalties to Unilever/Scientific with respect
to the
manufacture and sale of barrier creams sold in the United States
under
the
Kerodex
trademark. This royalty obligation, at 1% of Kerodex
sales,
will continue as long as we make, use or sell these products in
the United
States.
Our
trademarks and trade names are how we convey that the products
we sell are
“brand name” products. Our ownership of these trademarks and trade names enables
us to prevent others from using them and allows us to compete based
on the value
associated with them. Enforcing our proprietary rights in these
trademarks and
trade names, however, is expensive. If we are not able to effectively
enforce
our rights, others may be able to dilute our trademarks and trade
names and hurt
the value that our customers associate with our brands, which could
have a
material adverse effect on our business, financial condition and
results from
operations.
As
part
of the acquisition of the
Clear eyes
and
Murine
product
lines from Abbott Laboratories in 2002, specified country closings
were
scheduled to take place after 2003 in order for the parties to
obtain the
necessary regulatory approvals in those countries. While a number
of those
closings have occurred and the trademark registrations and applications
in such
countries have been assigned to us, we and Abbott are still in
the process of
executing separate agreements to effect assignments of trademark
registrations
and applications for the
Clear eyes
and
Murine
trademarks in certain countries that represent smaller markets
for these
products.
Other
intellectual property rights were acquired from Procter & Gamble and
Abbott Laboratories when we acquired the trademarks related to
the
Comet,
Chloraseptic,
Clear eyes,
Murine
and
Prell
product
lines; however, we did not in each case obtain title to all of
the intellectual
property used to manufacture and sell those products. Therefore,
we are
dependent upon Procter & Gamble, Abbott Laboratories and other third
parties for intellectual property used in the manufacture and sale
of certain of
our products. For example, we rely on third parties for intellectual
property
relating to
Comet
products,
Chloraseptic
strips,
Prell
shampoo,
Spic
and Span
dilutables, Cinch
spray,
and Compound
W Freeze Off.
We have
licenses for such intellectual property or manufacturing agreements
with the
owners of such intellectual property. However, if we are unable
to maintain
these arrangements, we would have to establish new arrangements
with different
licensors or manufacturers. If this
-13-
were
to occur, we could experience disruptions in our business and our
ability to
meet customer demand could be constrained, each of which could
have a material
adverse effect on our business, financial condition and results
from
operations.
We
have
granted MF Distributions, Inc. an exclusive license (with an option to
purchase) to sell
Spic
and Span
and
Cinch
products
in Canada for a royalty. In 2003, we assigned our Italian trademark
applications
and registrations for
Spic
and Span
and
Cinch
to
Conter, S.p.A., and entered into a concurrent use agreement with
Conter with
respect to such marks. Conter is also a licensee of the Spic
and Span
trademark in Benelux, Portugal, Romania and Malta.
We
have
licensed to Procter & Gamble the right to use the
Comet, Spic and Span
and
Chlorinol®
trademarks in the commercial/institutional/industrial segment in
the United
States and Canada until 2019. We have also licensed to Procter
& Gamble the
Comet
and
Chlorinol
brands
in Russia and specified Eastern European countries until 2015.
Seasonality
The
first
quarter of our fiscal year typically has the lowest level of revenue
due to the
seasonal nature of certain of our brands relative to the summer
and winter
months. In addition, the first quarter is the least profitable
quarter due the
increased advertising and promotional spending to support those
brands with a
summer selling season, such as Compound
W,
Cutex
and
New-Skin.
The
Company’s advertising and promotional campaigns in the third quarter influence
sales in the fourth quarter winter months. Additionally, the fourth
quarter
typically has the lowest level of advertising and promotional spending
as a
percent of revenue.
Information
Technology
We
use
ACCPAC as our business management system. The system handles our
accounts
receivable, accounts payable, inventory control, purchase order,
order entry and
general ledger transactions. Because this system gives us the ability
to manage
several different companies at the same time, we anticipate that
any integration
required as the result of future acquisitions will be completed
without
disruption to our daily operations.
For
EDI
transactions, we use Gentran, software acquired from Sterling Commerce,
which is
one of the most widely used packages for EDI in the United States.
The above
systems, along with our highly experienced staff located in Jackson,
Wyoming and
Irvington, New York, give us the capability to add brands or entire
companies to
the portfolio in a seamless fashion.
Employees
We
employed 87 individuals as of March 31, 2006. None of our employees are
party to collective bargaining agreements. Management believes
that its
relations with its employees are good.
Backlog
Orders
The
Company had no backlog orders as of March 31, 2006.
Market
Ranking and Other Data
The
data
included in this Annual Report on Form 10-K regarding market share and
ranking, including our position and the position of our competitors
within these
markets, are based on data generated by the independent market
research firm,
Information Resources, Inc., which we refer to as “Information Resources.”
Information Resources reports retail sales in the food, drug and
mass
merchandise markets. Information Resources data for the mass merchandise
market,
however, does not include Wal-Mart, which ceased providing sales
data to
Information Resources in 2001. Although Wal-Mart represents a significant
portion of the mass merchandise market for us, as well as our competitors,
we
believe that Wal-Mart’s exclusion from Information Resources data does not
significantly change our market share or ranking relative to our
competitors.
Unless
otherwise indicated, all references in this Annual Report on Form 10-K to
“market share” or “market
-14-
position”
are based on sales in the United States, as calculated by Information
Resources
for the 52 weeks ended March 19, 2006.
“ACV”
refers to the All Commodity Volume Food Drug Mass Index, as calculated
by
Information Resources for the 52 weeks ended March 19, 2006. ACV
measures the weighted sales volume of stores that sell a particular
product out
of all the stores that sell products in that market segment generally.
For
example, if a product is sold by 50% of the stores that sell products
in that
market segment, but those stores account for 85% of the sales volume
in that
market segment, that product would have an ACV of 85%. We believe
that ACV is a
measure of a product’s importance to major retailers. We believe that a high ACV
evidences a product’s attractiveness to consumers, as major retailers will carry
products which are demanded by its customers. Lower ACV measures
would indicate
that a product is not as available to consumers because major national
and
regional retailers do not carry products for which consumer demand
may not be as
high. For these reasons, we believe that ACV is an important measure
for
investors to gauge consumer awareness in the Company’s product
offerings.
Available
Information
Our
Internet address is www.prestigebrandsinc.com. We make available
free of charge
on or through our Internet website our Annual Reports on Form 10-K,
Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and amendments
to those
reports, and the Proxy Statement furnished in connection with our
annual
stockholders’ meetings, as soon as reasonably practicable after we
electronically file such material with, or furnish it to, the Securities
and
Exchange Commission (the “SEC”). The information found on our website shall not
be deemed incorporated by reference by any general statement incorporating
by
reference this Annual Report on Form 10-K into any filing under
the Securities
Act of 1933, as amended (the “Securities Act”), or under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), and shall not otherwise be deemed
filed under such Acts. Information on our Internet website does
not constitute a
part of this Annual Report on Form 10-K and is not incorporated
herein by
reference.
We
have
adopted a Code of Conduct Policy, Code of Ethics for Senior Financial
Employees,
Complaint Procedures for Accounting and Auditing Matters, Corporate
Governance
Guidelines, Audit Committee Pre-Approval Policy, and Charters for
our Audit,
Compensation and Nominating and Corporate Governance Committees.
We will provide
to any person without charge, upon request, a copy of the foregoing
materials.
Any requests for the foregoing documents from us should be made
in writing to
Prestige Brands Holdings, Inc., 90 North Broadway, Irvington, New
York 10533,
Attention: Secretary. We intend to disclose future amendments to
the provisions
of the foregoing documents, policies and guidelines and waivers
therefrom, if
any, on our Internet website and/or through the filing of a Current
Report on
Form 8-K with the SEC to the extent required under the Exchange
Act.
-15-
ITEM
1A. RISK
FACTORS
The
high level of competition in our industry could adversely affect
our sales,
operating results and profitability.
The
business of selling brand name consumer products in the over-the-counter
drug,
household cleaning and personal care categories is highly competitive.
These
markets include numerous manufacturers, distributors, marketers
and retailers
that actively compete for consumers’ business both in the United States and
abroad. Many of these competitors are larger and have substantially
greater
resources than we do, and may therefore have the ability to spend
more
aggressively on advertising and marketing and to respond more effectively
to
changing business and economic conditions. If this were to occur,
it could have
a material adverse effect on our business, financial condition
and results from
operations.
Our
principal competitors vary by industry category. Competitors in
the over-the
counter drug category include Pfizer, maker of
Visine®,
which
competes with our
Clear eyes
and
Murine
brands;
McNeill-PPC, maker of
Tylenol®
Sore
Throat, which competes with our
Chloraseptic
brand;
Schering-Plough, maker of
Dr. Scholl’s®,
which
competes with our
Compound W
brand;
Johnson & Johnson, maker of
BAND-AID®
Brand
Liquid Bandage, which competes with our
New-Skin
brand;
GlaxoSmithKline, maker of
Debrox®,
which
competes with our
Murine
brand;
and Sunstar America, Inc maker of GUM® line of oral care products, which
competes with our The
Doctor’s
brand.
Competitors
in the household cleaning category include Henkel, maker of
Soft
Scrub®,
and
Clorox, maker of
Tilex®,
each
of which competes with our
Comet
brand,
Clorox’s
Pine
Sol®,
which
competes with our
Spic
and Span
brand
and 3M, maker of Scotch-Brite® and O-Cel-O®,
which
competes with our Chore
Boy
brand.
Competitors
in the personal care category include Johnson & Johnson, maker
of
T-Gel®
shampoo,
which competes with our
Denorex
brand,
and Del Laboratories, maker of
Sally Hansen®,
which
competes with our
Cutex
brand.
Certain
of our product lines that account for a large percentage of our
sales have a
small market share relative to our competitors. For example, while
Clear eyes
has a
number two market share position of 14.9%, its top competitor,
Visine,
has a
market share of 42.5%. In contrast, certain of our brands with
number two market
positions have a similar market share relative to our competitors.
For
example,
Compound W
has a
number two market position of 33.4% and its top competitor,
Dr. Scholl’s
Clear
Away® and Freeze Away®, have a market position of 41.7%. Also, while
Cutex
is the
number one brand name nail polish remover with a market share of
28.8%,
non-branded, private label nail polish removers account, in the
aggregate, for
50.0% of the market. Finally, while our
New-Skin
liquid
bandage product has a number one market position of 36.8%, the
size of the
liquid bandage market is relatively small, particularly when compared
to the
much larger bandage category. See “Market, Ranking and Other Data”
section on page 14 of this document for information regarding market share
calculations.
We
compete on the basis of numerous factors, including brand recognition,
product
quality, performance, price and product availability at retail
stores.
Advertising, promotion, merchandising and packaging, the timing
of new product
introductions and line extensions also have a significant impact
on consumer
buying decisions and, as a result, on our sales. The structure
and quality of
the sales force, as well as consumption of our products affects
in-store
position, wall display space and inventory levels in retail stores.
If we are
unable to maintain or improve the inventory levels and in-store
positioning of
our products in retail stores, our sales and operating results
will be adversely
affected. Our markets also are highly sensitive to the introduction
of new
products, which may rapidly capture a significant share of the
market. An
increase in the amount of product introductions by our competitors
could have a
material adverse effect on our business, financial condition and
results from
operations.
In
addition, competitors may attempt to gain market share by offering
products at
prices at or below those typically offered by us. Competitive pricing
may
require us to reduce prices and may result in lost sales or a reduction
of our
profit margins. Future price or product changes by our competitors
or our
inability to react with price or product changes of our own to
maintain our
current market position could have a material adverse effect on
our business,
financial condition and results from operations.
-16-
We
depend on a limited number of customers for a large portion of
our gross sales
and the loss of one or more of these customers could reduce our
gross sales and
therefore, could have a material adverse effect on our business,
financial
condition and results of operations.
For
2006,
our top five and ten customers accounted for approximately 41%
and 51% of our
invoiced sales, respectively. Wal-Mart, which itself accounted
for approximately
21.0% of our invoiced sales, is our only customer that accounted
for 10% or more
of our gross sales for 2006. We expect that for 2007 and future
periods, our top
five and ten customers, including Wal-Mart, will, in the aggregate,
continue to
account for a large portion of our gross sales. The loss of one
or more of our
top customers, any significant decrease in sales to these customers,
or any
significant decrease in our retail display space in any of these
customers’
stores, could reduce our gross sales, and therefore, could have
a material
adverse effect on our business, financial condition and results
from
operations.
In
addition, our business is based primarily upon individual sales
orders. We
typically do not enter into long-term contracts with our customers.
Accordingly,
our customers could cease buying products from us at any time and
for any
reason. The fact that we do not have long-term contracts with our
customers
means that we have no recourse in the event a customer no longer
wants to
purchase products from us. If a significant number of our customers,
or any of
our significant customers, elect not to purchase products from
us, our business,
financial condition and results from operations could be adversely
affected.
We
depend on third party manufacturers to produce the products we
sell. If we are
unable to maintain these manufacturing relationships or fail to
enter into
additional or different arrangements, we may be unable to meet
customer demand
and our sales and profitability may suffer as a result.
All
of
our products are produced by third party manufacturers. Without
adequate
supplies of merchandise to sell to our customers, sales would decrease
materially and our business would suffer. In the event that our
third party
manufacturers are unable or unwilling to ship products to us in
a timely manner
or continue to manufacture products for us, we would have to rely
on other
current manufacturing sources or identify and qualify new manufacturers.
We
might not be able to identify or qualify such manufacturers for
existing or new
products in a timely manner and such manufacturers may not allocate
sufficient
capacity to us in order that we may meet our commitments. In addition,
identifying alternative manufacturers without adequate lead times
can compromise
required product validation and stability work, which may involve
additional
manufacturing expense, delay in production or product disadvantage
in the
marketplace. The consequences of not securing adequate and timely
supplies of
merchandise would negatively impact inventory levels, sales and
gross margin
rates, and could have a material adverse effect on our business,
financial
condition and results from operations.
In
addition, even if our current manufacturers continue to manufacture
our
products, they may not maintain adequate controls with respect
to product
specifications and quality and may not continue to produce products
that are
consistent with our standards or applicable regulatory requirements.
If we are
forced to rely on products of inferior quality, then our brand
recognition and
customer satisfaction would likely suffer, which would likely lead
to reduced
sales, which could have a material adverse effect on our business,
financial
condition and results from operations. These manufacturers may
also increase the
cost of the products we purchase from them. If our manufacturers
increase our
costs, our margins would be adversely affected if we cannot pass
along these
increased costs to our customers, which in turn could have a material
adverse
effect on our business, financial condition and results from
operations.
As
of
March 31, 2006, we
have
relationships with over 40 third-party manufacturers. Of those,
our top 10
manufacturers produced items that accounted for 81% of our gross
sales for 2006.
We do not have long-term contracts with the manufacturers of products
that
accounted for approximately 34% of our gross sales for 2006.
The fact
that we do not have long-term contracts with these manufacturers
means that they
could cease manufacturing these products at any time and for any
reason, which
could have a material adverse effect on our business, financial
condition and
results from operations.
-17-
Disruption
in our main distribution center may prevent us from meeting customer
demand and
our sales and profitability may suffer as a result.
We
manage
our product distribution in the continental United States through
a main
distribution center in St. Louis, Missouri. A serious disruption,
such as a
flood or fire, to our main distribution center could damage our
inventory and
could materially impair our ability to distribute our products
to customers in a
timely manner or at a reasonable cost. We could incur significantly
higher costs
and experience longer lead times associated with distributing our
products to
our customers during the time that it takes for us to reopen or
replace our
distribution center. As a result, any such serious disruption could
have a
material adverse effect on our business, financial condition and
results from
operations.
Efforts
to acquire other companies, brands or product lines may divert
our managerial
resources away from our business operations, and if we complete
an acquisition,
we may incur additional costs or experience integration
problems.
The
majority of our growth has been driven by acquiring other brands
and companies.
At any given time, we may be engaged in discussions with respect
to possible
acquisitions that are intended to enhance our product portfolio,
enable us to
realize cost savings and further diversify our category, customer
and channel
focus. Our ability to successfully grow through acquisitions depends
on our
ability to identify, negotiate, complete and integrate suitable
acquisitions and
to obtain any necessary financing. These efforts could divert the
attention of
our management and key personnel from our business operations.
If we complete
acquisitions, we may also experience:
| · |
difficulties
in integrating any acquired companies, personnel and
products into our
existing business;
|
| · |
delays
in realizing the benefits of the acquired company or
products;
|
| · |
higher
costs of integration than we
anticipated;
|
| · |
difficulties
in retaining key employees of the acquired business who
are necessary to
manage the business;
|
| · |
difficulties
in maintaining uniform standards, controls, procedures
and policies
throughout our acquired companies;
or
|
| · |
adverse
customer reaction to the
acquisition.
|
In
addition, an acquisition could adversely affect our operating results
as a
result of higher interest costs from the acquisition related debt
and higher
amortization expenses related to the acquired intangible assets.
The diversion
of management’s attention to pursue acquisitions, or our failure to successfully
integrate acquired companies into our business, could have a material
adverse
effect on our business, financial condition and results from
operations.
Regulatory
matters governing our industry could have a significant negative
effect on our
sales and operating costs.
In
both
our U.S. and foreign markets, we are affected by extensive laws,
governmental
regulations, administrative determinations, court decisions and
similar
constraints. Such laws, regulations and other constraints exist
at the federal,
state or local levels in the United States and at analogous levels
of government
in foreign jurisdictions.
The
formulation, manufacturing, packaging, labeling, distribution,
importation, sale
and storage of our products are subject to extensive regulation
by various
federal agencies, including the FDA, the FTC, the CPSC, the EPA,
and by various
agencies of the states, localities and foreign countries in which
our products
are manufactured, distributed and sold. If we or our third party
manufacturers
fail to comply with those regulations, we could become subject
to significant
penalties or claims, which could materially adversely affect our
business,
financial condition and results from operations. In addition, the
adoption of
new regulations or changes in the interpretations of existing regulations
may
result in significant compliance costs or discontinuation of product
-18-
sales
and
may adversely affect the marketing of our products, resulting in
a significant
loss of sales revenues which could have a material adverse effect
on our
business, financial condition and results from operations.
In
accordance with the FDC Act and FDA regulations, the manufacturing
processes of
our third party manufacturers must also comply with the FDA’s cGMPs. The A
inspects our facilities and those of our third party manufacturers
periodically
to determine if we and our third party manufacturers are complying
with cGMPs. A
history of past compliance is not a guarantee that future cGMPs
will not mandate
other compliance steps and associated expense.
If
we or
our third party manufacturers fail to comply with federal, state
or foreign
regulations, we could be required to:
| · |
suspend
manufacturing operations;
|
| · |
change
product formulations;
|
| · |
suspend
the sale of products with non-complying
specifications;
|
| · |
initiate
product recalls; or
|
| · |
change
product labeling, packaging or advertising or take other
corrective
action.
|
Any
of
the foregoing actions could have a material adverse effect on our
business,
financial condition and results from operations.
In
addition, our failure to comply with FTC or any other federal and
state
regulations, or with regulations in foreign markets, that cover
our product
claims and advertising, including direct claims and advertising
by us, may
result in enforcement actions and imposition of penalties or otherwise
materially and adversely affect the distribution and sale of our
products, which
could have a material adverse effect on our business, financial
condition and
results from operations.
Product
liability claims could adversely affect our sales and operating
results.
We
may be
required to pay for losses or injuries purportedly caused by our
products. We
have been and may again be subjected to various product liability
claims. Claims
could be based on allegations that, among other things, our products
contain
contaminants, include inadequate instructions regarding their use
or inadequate
warnings concerning side effects and interactions with other substances.
For
example,
Denorex
products
contain coal tar which the State of California has determined causes
cancer and
our packaging contains a warning to this effect. In addition, any
product
liability claims may result in negative publicity that may adversely
affect our
sales and operating results. Also, if one of our products is found
to be
defective we may be required to recall it, which may result in
substantial
expense, adverse publicity and may adversely affect our sales and
operating
results. Although we maintain, and require our material suppliers
and third
party manufacturers to maintain, product liability insurance coverage,
potential
product liability claims may exceed the amount of insurance coverage
or
potential product liability claims may be excluded under the terms
of the
policy, which could have a material adverse effect on our business,
financial
condition and results from operations. In addition, we may also
be required to
pay higher premiums and accept higher deductibles in order to secure
adequate
insurance coverage in the future.
If
we are unable to protect our intellectual property rights our ability
to compete
effectively in the market for our products could be negatively
impacted.
The
market for our products depends to a significant extent upon the
goodwill
associated with our trademarks and trade names. The trademarks
and trade names
on our products are how we convey that the products we sell are
“brand name”
products, and we believe consumers ascribe value to our brands.
We own the
material trademark and trade name rights used in connection with
the packaging,
marketing and sale of our products. This ownership is what prevents
our
competitors or new entrants to the market from using our valuable
brand names.
Therefore,
-19-
trademark
and trade name protection is critical to our business. Although
most of our
material trademarks are registered in the United States and in
applicable
foreign countries, we may not be successful in asserting trademark
or trade name
protection. If we were to lose the exclusive right to use one or
more of our
brand names, the loss of such exclusive right could have a material
adverse
effect on our business, financial condition and results from operations.
We
could also incur substantial costs to defend legal actions relating
to the use
of our intellectual property, which could have a material adverse
effect on our
business, financial condition and results from operations.
Other
parties may infringe on our intellectual property rights and may
thereby dilute
the value of our brands in the marketplace. If our brands become
diluted, or if
our competitors are able to introduce brands that cause confusion
with our
brands in the marketplace, it could adversely affect the value
that our
consumers associate with our brands, and thereby negatively impact
our sales.
Any such infringement of our intellectual property rights would
also likely
result in a commitment of our time and resources to protect these
rights through
litigation or otherwise. In addition, third parties may assert
claims against
our intellectual property rights and we may not be able to successfully
resolve
those claims. In that event, we may lose our ability to use the
brand names that
were the subject of those claims, which could have a material adverse
effect on
our business, financial condition and results from operations.
Virtually
all of our assets consist of goodwill and intangibles
As
our
financial statements indicate, virtually all of our assets consist
of goodwill
and intangibles, principally trademarks and trade names that we
have acquired.
In the event that the value of those assets became impaired or
our business is
materially adversely affected in any way, we would not have tangible
assets that
could be sold to repay our liabilities. As a result, our creditors
and investors
may not be able to recoup the amount of the indebtedness that they
have extended
or the amount they have invested in the Company.
We
depend on third parties for intellectual property relating to some
of the
products we sell, and our inability to maintain or enter into additional
or
future license agreements may result in our failure to meet customer
demand,
which would adversely affect our operating results.
We
have
licenses or manufacturing agreements with third parties that own
intellectual
property (e.g., formulae, copyrights, trade dress, patents and
other technology)
used in the manufacture and sale of certain of our products. In
the event that
any such license or manufacturing agreement is terminated as a
result of our
breach (e.g., by our failure to pay royalties or breach of confidentiality),
we
may lose the right to use or have reduced rights to use the intellectual
property covered by such agreement and may have to develop or obtain
rights to
use other intellectual property. Similarly, our rights could be
reduced if the
applicable licensor or contract manufacturer fails to maintain
the licensed
patents or trade secrets because in such event our competitors
could obtain the
right to use the intellectual property without restriction. If
this were to
occur, we might not be able to develop or obtain replacement intellectual
property in a timely manner and the products modified as a result
of this
development may not be well-received by customers. The consequences
of losing
the right to use or having reduced rights to such intellectual
property could
negatively impact our sales and operating results through failure
to meet
consumer demand for the affected products, the cost of developing
or obtaining
different intellectual property and possible reduction in sales
of the affected
products, which could have a material adverse effect on our business,
financial
condition and results from operations. In addition, development
of replacement
products may be time-consuming, expensive and ultimately may not
be
feasible.
We
depend on our key personnel and the loss of the services provided
by any of our
executive officers or other key employees could harm our business
and results of
operations.
Our
success depends to a significant degree upon the continued contributions
of our
senior management, many of whom would be difficult to replace.
These employees
may voluntarily terminate their employment with us at any time.
We may not be
able to successfully retain existing personnel or identify, hire
and integrate
new personnel. While we believe we have developed depth and experience
among our
key personnel, our business may be adversely affected if one or
more of these
key individuals left. We do not maintain any key-man or similar
insurance
policies covering any of our senior management or key
personnel.
-20-
Our
substantial indebtedness could adversely affect our financial health
and the
significant amount of cash we must generate to service our debt
will not be
available to reinvest in our business.
We
have a
significant amount of indebtedness. As of March 31, 2006, our total
indebtedness, including current maturities, is approximately $498.6
million.
Additionally, we have the ability to borrow up to $200.0 million
pursuant to our
senior credit facility and an additional $53.0 million under our
amended
revolving credit facility.
Our
substantial indebtedness could:
| · |
increase
our vulnerability to general adverse economic and industry
conditions;
|
| · |
require
us to dedicate a substantial portion of our cash flow
from operations to
payments against our indebtedness, thereby reducing the
availability of
our cash flow to fund working capital, capital expenditures,
acquisitions
and investments and other general corporate
purposes;
|
| · |
limit
our flexibility in planning for, or reacting to, changes
in our business
and the markets in which we
operate;
|
| · |
place
us at a competitive disadvantage compared to our competitors
that have
less debt; and
|
| · |
limit,
among other things, our ability to borrow additional
funds.
|
The
terms
of the indenture governing the 9¼% senior subordinated notes and the senior
credit facility allow us to issue and incur additional debt upon
satisfaction of
conditions set forth in the respective agreements. If new debt
is added to
current debt levels, the related risks described above could
increase.
Our
operating flexibility is limited in significant respects by the
restrictive
covenants in our senior credit facility and the indenture governing
the
notes.
Our
senior credit facility and the indenture governing the notes impose
restrictions
that could increase our vulnerability to adverse economic and industry
conditions by limiting our flexibility in planning for, and reacting
to, changes
in our business and industry. Specifically, these restrictions
limit our ability
to:
| · |
borrow
money or issue guarantees;
|
| · |
pay
dividends, purchase stock or make other restricted payments
to
stockholders;
|
| · |
make
investments;
|
| · |
use
assets as security in other
transactions;
|
| · |
sell
assets or merge with or into other
companies;
|
| · |
enter
into transactions with affiliates;
|
| · |
sell
stock in our subsidiaries; and
|
| · |
direct
our subsidiaries to pay dividends or make other payments
to our
company.
|
Our
ability to engage in these types of transactions is generally limited
by the
terms of the senior credit facility and the indenture governing
the notes, even
if we believe that a specific transaction would positively contribute
to our
future growth, operating results or profitability. However, if
we are able to
enter into these types of transactions under the terms of the senior
credit
facility and the indenture, or if we obtain a waiver with respect
to any
specific transaction, that transaction may cause our indebtedness
to increase,
may not result in the benefits we anticipate or may cause us to
incur greater
costs or suffer greater disruptions in our business than we
anticipate,
-21-
and
could
therefore, have a material adverse effect on our business, financial
condition
and results from operations.
In
addition, the senior credit facility requires us to maintain certain
leverage,
interest and fixed charge coverage ratios. Although we believe
we are on track
to meet and/or maintain the financial ratios contained in our credit
agreement,
our ability to do so may be affected by events outside our control.
Covenants in
our senior credit facility also require us to use 100% of the proceeds
we
receive from debt issuances to repay outstanding borrowings under
our senior
credit facility. Any failure by us to comply with the terms and
conditions of
the credit agreement and the indenture governing the notes could
have a material
adverse effect on our business, financial condition and results
from
operations.
The
senior credit facility and the indenture governing the notes contain
cross-default provisions that may result in the acceleration of
all our
indebtedness.
The
senior credit facility and the indenture governing the notes contain
provisions
that allow the respective creditors to declare all outstanding
borrowings under
one agreement to be immediately due and payable as a result of
a default under
the other agreement. The result is that upon our default under
one debt
agreement, all indebtedness may become immediately due and payable
under the
senior credit facility and the indenture. Under the senior credit
facility,
failure to make a payment required by the indenture, among other
things, may
lead to an event of default under the credit agreement. Similarly,
an event of
default or failure to make a required payment at maturity under
the senior
credit facility, among other things, may lead to an event of default
under the
indenture. If the debt under the senior credit facility and indenture
were to
both be accelerated, the aggregate amount immediately due and payable
as of
March 31, 2006 would have been approximately $498.6 million. We
presently do not have sufficient liquidity to repay these borrowings
in the
event they were to be accelerated, and we may not have sufficient
liquidity in
the future. Additionally, we may not be able to borrow money from
other lenders
to enable us to refinance the indebtedness. As of March 31, 2006, the book
value of our current assets was $86.0 million. Although the book
value of our
total assets was $1,038.6 million, approximately $935.1 million
was in the form
of intangible assets, including goodwill of $297.9 million, a significant
portion of which are illiquid and may not be available to satisfy
our creditors
in the event our debt is accelerated.
Any
failure to comply with the restrictions of the senior credit facility,
the
indenture related to the notes or any other subsequent financing
agreements may
result in an event of default. Such default may allow the creditors
to
accelerate the related debt, as well as any other debt to which
the
cross-acceleration or cross-default provisions apply. In addition,
the lenders
may be able to terminate any commitments they had made to supply
us with
additional funding. As a result, any default by us under our credit
agreement,
indenture governing the notes or any other financing agreement,
could have a
material adverse effect on our business, financial condition and
results from
operations.
ITEM
1B. UNRESOLVED
STAFF COMMENTS
There
are
no unresolved comments from the SEC’s staff that were received more than 180
days prior to March 31, 2006 regarding any of the Company’s periodic or current
reports under the Exchange Act.
ITEM
2. PROPERTIES
Our
corporate headquarters are located in Irvington, New York, a suburb
of New York
City. Primary functions undertaken at the Irvington facility include
senior
management, marketing, sales, operations and finance. The lease
on the Irvington
facility expires on April 30, 2009. We also have an administrative center
in Jackson, Wyoming. Primary functions undertaken at the Jackson
facility
include back office functions, such as invoicing, credit and collection,
general
ledger and customer service. The lease on the Jackson facility
expires on
December 31, 2006.
-22-
ITEM
3. LEGAL
PROCEEDINGS
In
June
2003, Dr. Jason Theodosakis filed a lawsuit, Theodosakis v. Walgreens,
et al.,
in the United States District Court in Arizona, alleging that two
of the
Company’s subsidiaries, Medtech Products, Inc. and Pecos Pharmaceutical,
Inc.,
as well as other unrelated parties, infringed the trade dress of
two of his
published books. Specifically, Dr. Theodosakis published “The Arthritis Cure”
and “Maximizing the Arthritis Cure” regarding the use of dietary supplements to
treat arthritis patients. Dr. Theodosakis alleged that his books
have a
distinctive trade dress, or cover layout, design, color and typeface,
and those
products that the defendants sold under the ARTHx trademarks infringed
the
books’ trade dress and constituted unfair competition and false designation
of
origin. Additionally, Dr. Theodosakis alleged that the defendants
made false
endorsements of the products by referencing his books on the product
packaging
and that the use of his name, books and trade dress invaded his
right to
publicity. The Company sold the ARTHx trademarks, goodwill and
inventory to a
third party, Contract Pharmacal Corporation, in March 2003. On
January 12, 2005,
the court granted the Company’s motion for summary judgment and dismissed all
claims against Medtech Products and Pecos Pharmaceutical. The plaintiff
filed an
appeal in the U.S. Court of Appeals which was denied on March 28,
2006.
Subsequently, the plaintiff filed a petition for rehearing which
is
pending.
On
January 3, 2005, the Company was served with process by its former
lead counsel
in the Theodosakis litigation seeking $679,000 plus interest. The
case was filed
in the Supreme Court of New York in New York County and was styled
as Dickstein
Shapiro et al v. Medtech Products, Inc. In February 2005, the plaintiff
filed an
amended complaint naming Pecos Pharmaceutical as defendant. The
Company answered
and filed a counterclaim against Dickstein and also filed a third
party
complaint against the Lexington Insurance Company, the Company’s product
liability carrier. A mediation involving all parties was conducted
in March 2006
which resulted in settlement of the litigation. Pursuant to the
terms of the
settlement, the Company paid $126,000 to the Dickstein firm.
The
Company and certain of its officers and directors are defendants
in a
consolidated putative securities class action lawsuit filed in
the United States
District Court for the Southern District of New York (the “Consolidated
Action”). The first of the six consolidated cases was filed on August
3, 2005.
Plaintiffs purport to represent a class of stockholders of the
Company who
purchased shares between February 9, 2005 through November 15,
2005. Plaintiffs
also name as defendants the underwriters in the Company’s initial public
offering and a private equity fund that was a selling stockholder
in the
offering. The District Court has appointed a Lead Plaintiff. On
December 23,
2005, the Lead Plaintiff filed a Consolidated Class Action Complaint,
which
asserts claims under Sections 11, 12(a)(2) and 15 of the Securities
Act of 1933
and Sections 10(b), 20(a), and 20A of the Securities Exchange Act
of 1934. The
Lead Plaintiff generally alleges that the Company issued a series
of materially
false and misleading statements in connection with its initial
public offering
and thereafter in regard to the following areas: the accounting
issues described
in the Company’s press release issued on or about November 15, 2005; and the
alleged failure to disclose that demand for certain of the Company’s products
was declining and that the Company was planning to withdraw several
products
from the market. Plaintiffs seek an unspecified amount of damages.
The Company
filed a motion to dismiss the Consolidated Class Action Complaint
in February
2006. Oral argument on the motion is expected in June 2006. The
Company’s
management believes the allegations to be unfounded and will vigorously
pursue
its defenses; however, the Company cannot reasonably estimate the
potential
range of loss, if any.
On
September 6, 2005, another putative securities class action lawsuit
substantially similar to the initially-filed complaints in the
Consolidated
Action described above was filed against the same defendants in
the Circuit
Court of Cook County, Illinois (the “Chicago Action”). In light of the
first-filed Consolidated Action, proceedings in the Chicago Action
have been
stayed until a ruling on defendants’ anticipated motions to dismiss the
consolidated complaint in the Consolidated Action. The Company’s management
believes the allegations to be unfounded and will vigorously pursue
its
defenses; however, the Company cannot reasonably estimate the potential
range of
loss, if any.
On
May
23, 2006, Similasan Corporation filed a lawsuit against the Company
in the
United States District Court for the District of Colorado in which
Similasan
alleged false designation of origin, trademark and trade dress
infringement, and
deceptive trade practices by the Company related to Murine
for
Allergy Eye Relief, Murine
for
Tired Eye Relief and Murine
for
Earache Relief, as applicable. Similasan has requested injunctive
relief, an
-23-
accounting
of profits and damages and litigation costs and attorneys’ fees. In addition to
the lawsuit filed by Similasan in the U.S. District Court for the
District of
Colorado, the Company recently received a cease and desist letter
from Swiss
legal counsel to Similasan and its parent company, Similasan AG,
a Swiss
company. In the cease and desist letter, Similasan and Similasan
AG have alleged
a breach of the Secrecy Agreement executed by the Company and demanded
that the
Company cease and desist from (i) using confidential information
covered by the
Secrecy Agreement; and (ii) manufacturing, distributing, marketing
or selling
certain of its homeopathic products. The Company’s management believes the
allegations to be without merit and intends to vigorously pursue
its defenses;
however, the Company cannot reasonably estimate the potential range
of loss, if
any.
The
Company is also involved from time to time in other routine legal
matters and
other claims incidental to its business. The Company reviews outstanding
claims
and proceedings internally and with external counsel as necessary
to assess
probability of loss and for the ability to estimate loss. These
assessments are
re-evaluated each quarter or as new information becomes available
to determine
whether a reserve should be established or if any existing reserve
should be
adjusted. The actual cost of resolving a claim or proceeding ultimately
may be
substantially different than the amount of the recorded reserve.
In addition,
because it is not permissible under generally accepted accounting
principles to
establish a litigation reserve until the loss is both probable
and estimable, in
some cases there may be insufficient time to establish a reserve
prior to the
actual incurrence of the loss (upon verdict and judgment at trial,
for example,
or in the case of a quickly negotiated settlement). The Company
believes the
resolution of routine matters and other incidental claims, taking
into account
reserves and insurance, will not have a material adverse effect
on its business,
financial condition or results of operations.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-24-
|
ITEM
5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY
SECURITIES
|
Market
Information
Prestige
Brands Holdings, Inc.’s common stock is listed on the New York Stock
Exchange under the symbol “PBH.” Our initial public offering occurred on
February 9, 2005, and the first day of trading was February 10, 2005.
The high and low prices of the Company’s common stock as reported by the New
York Stock Exchange were as follows:
|
Year
Ended March 31, 2006
|
High
|
Low
|
|||||
|
Quarter
Ended:
|
|||||||
|
June
30, 2005
|
$
|
19.67
|
$
|
15.80
|
|||
|
September
30, 2005
|
21.15
|
10.50
|
|||||
|
December
31, 2005
|
12.50
|
9.39
|
|||||
|
March
31, 2006
|
13.13
|
10.22
|
|||||
|
Year
Ended March 31, 2005
|
|||||||
|
Quarter
Ended:
|
|||||||
|
March
31, 2005
(February
10, 2005 to
March
31 2005)
|
$
|
18.65
|
$
|
17.26
|
|||
Prestige
International Holdings, LLC, a wholly-owned subsidiary of Prestige
Brands
Holdings, Inc., owns 100% of the uncertificated ownership interests of
Prestige Brands International, LLC. There were no equity securities
sold by
Prestige Brands International, LLC during the period covered by
this report.
There is no established public trading market for the equity interests
of
Prestige Brands International, LLC.
Unregistered
Sales of Equity Securities and Use of Proceeds
There
were no equity securities sold by the Company during the period
covered by this
Annual Report on Form 10-K that were not registered under the Securities
Act of
1933, as amended.
The
following table sets forth information with respect to purchases
of shares of
the Company’s common stock made during the quarter ended March 31, 2006, by
or
on behalf of the Company or any “affiliated purchaser,” as defined by Rule
10b-18(a)(3) of the Exchange Act:
|
Issuer
Purchases of Equity Securities
|
||||
|
Period
|
Total
Number
of
Shares
Purchased
|
Average
Price
Paid Per
Share
|
Total
Number
of
Shares
Purchased
as
Part
of Publicly Announced
Plans
or
Programs
|
Maximum
Number
of
Shares
that May
Yet
Be Purchased
Under
the Plans
or
Programs
|
|
1/1/06
- 1/31/06
|
|
|
|
|
|
2/1/06
- 2/28/06
|
|
|
|
|
|
3/1/06
- 3/31/06
|
3,117
|
$ 1.70
|
--
|
--
|
|
Total
|
3,117
|
$
1.70
|
--
|
--
|
-25-
Holders
As
of
June 6, 2006, there were approximately 58 holders of record of
our common stock.
The number of record holders does not include beneficial owners
whose shares are
held in the names of banks, brokers, nominees or other fiduciaries.
As of such
date, Prestige International Holdings, LLC, a wholly-owned subsidiary
of the
Company, owned 100% of the uncertificated ownership interests of
Prestige Brands
International, LLC.
Dividend
Policy
We
have
not in the past paid, and do not expect for the foreseeable future,
to pay
dividends on our common stock. Instead, we anticipate that all
of our earnings
in the foreseeable future will be used in the operation and growth
of our
business. Any future determination to pay dividends will be at
the discretion of
our board of directors and will depend upon, among other factors,
our results of
operations, financial condition, capital requirements and contractual
restrictions, including restrictions under our senior credit facility
and the
indenture governing our 91/4%
senior
subordinated notes, and any other considerations our board of directors
deems
relevant.
Reorganization
as a Corporation
The
Company is the direct parent company of Prestige International
Holdings, LLC, a Delaware limited liability company, which was our former
top-tier holding company. The Company became the direct parent
of Prestige
International Holdings, LLC pursuant to a reorganization that took
place prior
to the completion of the common stock offering. The reorganization
did not
affect our operations, which we continue to conduct through our
operating
subsidiaries.
The
reorganization was effected under the terms of an exchange agreement
among the
Company, Prestige International Holdings, LLC and each holder of
common units
Prestige International Holdings, LLC. Pursuant to the agreement,
the holders of
common units of Prestige International Holdings, LLC exchanged
all of their
common units for an aggregate of 26.7 million shares of common
stock of the
Company. In addition, pursuant to the reorganization, members of
our management
team and other employees contributed an aggregate of 0.3 million
shares of
common stock to the Company for no consideration at the completion
of the
offering. After completion of the initial public offering, the
Company
contributed a portion of the net offering proceeds to Prestige
International
Holdings, LLC, which used such proceeds to redeem all of its senior
preferred
units and class B preferred units, thus causing Prestige International
Holdings, LLC to become a wholly-owned subsidiary of the Company.
ITEM
6. SELECTED
FINANCIAL DATA
Prestige
Brands Holdings, Inc. and Predecessor
Summary
historical financial data for 2002 and 2003, and for the period
from
April 1, 2003 to February 5, 2004 is referred to as the “predecessor”
information. On February 6, 2004, an indirect subsidiary of Prestige Brands
Holdings, Inc. acquired Medtech Holdings, Inc. and The Denorex
Company, which at the time were both under common control and management,
in a
transaction accounted for using the purchase method. The summary
financial data
after such dates, referred to as “successor” information, includes the financial
statement impact of recording fair value adjustments arising from
such
acquisitions. In addition, the summary financial data includes
the effects of
The Spic & Span Company, Bonita Bay Holdings, Inc., Vetco Inc. and
Dental Concepts, LLC acquisitions, as well as the acquisition of
the
Chore
Boy
trademark, from their respective acquisition dates.
-26-
|
(In
Thousands, except per share data)
|
Years
Ended March 31
|
April
1, 2003 to February 5,
|
February
6,
2004
to
March
31,
|
||||||||||
|
2002
|
2003
|
2004
|
2004
|
||||||||||
|
Income
Statement Data
|
(Predecessor)
|
(Successor)
|
|||||||||||
|
Total
revenues
|
$
|
46,253
|
$
|
71,734
|
$
|
68,402
|
$
|
16,876
|
|||||
|
Cost
of sales (1)
|
18,735
|
27,017
|
26,855
|
9,351
|
|||||||||
|
Gross
profit
|
27,518
|
44,717
|
41,547
|
7,525
|
|||||||||
|
Advertising
and promotion expenses
|
5,205
|
11,116
|
10,061
|
1,267
|
|||||||||
|
Depreciation
and amortization
|
3,992
|
5,274
|
4,498
|
931
|
|||||||||
|
General
and administrative
|
8,576
|
12,075
|
12,068
|
1,649
|
|||||||||
|
Interest
expense, net
|
8,766
|
9,747
|
8,157
|
1,725
|
|||||||||
|
Other
expense (2)
|
--
|
685
|
1,404
|
--
|
|||||||||
|
Income
from continuing operations before income taxes
|
979
|
5,820
|
5,359
|
1,953
|
|||||||||
|
Provision
for income taxes
|
368
|
3,287
|
2,214
|
724
|
|||||||||
|
Income
from continuing operations
|
611
|
2,533
|
3,145
|
1,229
|
|||||||||
|
Loss
from discontinued operations
|
(66
|
)
|
(5,644
|
)
|
--
|
--
|
|||||||
|
Cumulative
effect of change in accounting principle
|
--
|
(11,785
|
)
|
--
|
--
|
||||||||
|
Net
income (loss)
|
$
|
545
|
$
|
(14,896
|
)
|
$
|
3,145
|
1,229
|
|||||
|
Cumulative
preferred dividends on Senior Preferred and Class B
Preferred
units
|
(1,390
|
)
|
|||||||||||
|
Net
loss available to members and common stockholders
|
$
|
(161
|
)
|
||||||||||
|
Basic
and diluted net loss per
share
|
$
|
(0.01
|
)
|
||||||||||
|
Basic
and diluted weighted average shares outstanding
|
24,472
|
||||||||||||
|
Other
Financial Data:
|
|||||||||||||
|
Capital
expenditures
|
$
|
95
|
$
|
421
|
$
|
66
|
$
|
42
|
|||||
|
Cash
provided by (used in):
|
|||||||||||||
|
Operating
activities
|
3,940
|
12,519
|
7,843
|
(1,706
|
)
|
||||||||
|
Investing
activities
|
(4,412
|
)
|
(2,165
|
)
|
(576
|
)
|
(166,874
|
)
|
|||||
|
Financing
activities
|
5,526
|
(14,708
|
)
|
(8,629
|
)
|
171,973
|
|||||||
|
Balance
Sheet Data:
|
|||||||||||||
|
Cash
and cash equivalents
|
$
|
7,884
|
$
|
3,530
|
$
|
2,868
|
$
|
3,393
|
|||||
|
Total
assets
|
174,039
|
142,056
|
145,130
|
325,358
|
|||||||||
|
Total
long-term debt, including current
maturities
|
93,530
|
81,866
|
71,469
|
148,694
|
|||||||||
|
Members’/Stockholders’
equity
|
58,737
|
43,858
|
50,122
|
125,948
|
|||||||||
-27-
|
(In
Thousands, except per share data)
|
Years
Ended March 31
|
||||||
|
2005
|
2006
|
||||||
|
Income
Statement Data
|
(Successor)
|
||||||
|
Total
revenues
|
$
|
289,069
|
$
|
296,668
|
|||
|
Cost
of sales (1)
|
139,009
|
139,430
|
|||||
|
Gross
profit
|
150,060
|
157,238
|
|||||
|
Advertising
and promotion expenses
|
29,697
|
32,082
|
|||||
|
Depreciation
and amortization
|
9,800
|
10,777
|
|||||
|
General
and administrative
|
20,198
|
21,158
|
|||||
|
Impairment
of intangible assets and goodwill
|
--
|
9,317
|
|||||
|
Interest
expense, net
|
44,726
|
36,346
|
|||||
|
Other
expense (2)
|
26,863
|
--
|
|||||
|
Income
from continuing operations before income taxes
|
18,776
|
47,558
|
|||||
|
Provision
for income taxes
|
8,556
|
21,281
|
|||||
|
Net
income (loss)
|
10,220
|
26,277
|
|||||
|
Cumulative
preferred dividends on Senior Preferred and Class B Preferred
units
|
(25,395
|
)
|
--
|
||||
|
Net
income (loss) available to common stockholders
|
$
|
(15,175
|
)
|
$
|
26,277
|
||
|
Net
income (loss) per common share:
|
|||||||
|
Basic
|
$
|
(0.55
|
)
|
$
|
0.54
|
||
|
Diluted
|
$
|
(0.55
|
)
|
$
|
0.53
|
||
|
Weighted
average shares outstanding:
|
|||||||
|
Basic
|
27,546
|
48,908
|
|||||
|
Diluted
|
27,546
|
50,008
|
|||||
|
Other
Financial Data
|
|||||||
|
Capital
expenditures
|
$
|
365
|
$
|
519
|
|||
|
Cash
provided by (used in):
|
|||||||
|
Operating
activities
|
51,042
|
53,861
|
|||||
|
Investing
activities
|
(425,844
|
)
|
(54,163
|
)
|
|||
|
Financing
activities
|
376,743
|
3,168
|
|||||
|
Balance
Sheet Data
|
|||||||
|
Cash
and cash equivalents
|
$
|
5,334
|
$
|
8,200
|
|||
|
Total
assets
|
996,600
|
1,038,645
|
|||||
|
Total
long-term debt, including current maturities
|
495,360
|
498,630
|
|||||
|
Members’/Stockholders’
equity
|
382,047
|
409,407
|
|||||
|
(1)
|
For
the period from February 6, 2004 to March 31, 2004 and for 2005
and 2006, cost of sales includes $1,805, $5,335 and $248, respectively,
of
charges related to the step-up of
inventory.
|
(2)
For
2005,
other expense includes a loss on debt extinguishment of $26,854.
-28-
|
ITEM
7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The
following discussion of our financial condition and results of operations should
be read together with the “Selected Financial Data” and the consolidated
financial statements and the related notes included elsewhere in this Annual
Report on Form 10-K. Future results could differ materially from the
discussion below for many reasons, including the factors described in Item
1A.,
“Risk Factors” in this Annual Report on Form 10-K. Tables and other data in
this section may not total due to rounding.
General
We
sell
well-recognized, brand name over-the-counter drug, household cleaning and
personal care products. We operate in niche segments of these categories where
we can use the strength of our brands, our established retail distribution
network, a low-cost operating model and our experienced management team as
a
competitive advantage to grow our presence in these categories and, as a result,
grow our sales and profits.
We
have
grown our brand portfolio by acquiring strong and well-recognized brands from
larger consumer products and pharmaceutical companies, as well as other brands
from smaller private companies. While the brands we have purchased from larger
consumer products and pharmaceutical companies have long histories of support
and brand development, we believe that at the time we acquired them they were
considered “non-core” by their previous owners and did not benefit from the
focus of senior level management or strong marketing support. We believe that
the brands we have purchased from smaller private companies have been
constrained by the limited resources of their prior owners. After acquiring
a
brand, we seek to increase its sales, market share and distribution in both
existing and new channels. We pursue this growth through increased spending
on
advertising and promotion, new marketing strategies, improved packaging and
formulations and innovative new products.
In
February 2005, we raised $448.0 million through an initial public offering
(“IPO”) of 28.0 million shares of common stock. The net proceeds of the offering
were $416.8 million after deducting $28.0 million of underwriters’ fees and $3.2
million of offering expenses. The net proceeds of $416.8 million plus
$3.0 million from our revolving credit facility and $8.8 million of cash on
hand went to repay $100.0 million of our existing senior indebtedness (plus
a
repayment premium of $3.0 million and accrued interest of
$0.5 million), to redeem $84.0 million in aggregate principal amount
of our existing 91/4%
senior
subordinated notes (plus a redemption premium of $7.8 million and accrued
interest of $3.3 million), to repurchase an aggregate of 4.7 million shares
of our common stock held by the GTCR funds and the TCW/Crescent funds for $30.2
million, and to contribute $199.8 million to our subsidiary, Prestige
International Holdings, LLC, which was used to redeem all of its
outstanding senior preferred units and class B preferred units. We did not
receive any of the proceeds from the sale of 4.2 million shares by the selling
stockholders as a result of underwriters exercising their over-allotment
options.
Impact
of Purchase Accounting
The
acquisitions of Medtech, Spic and Span, Bonita Bay, Vetco and Dental Concepts
have been accounted for using the purchase method of accounting pursuant to
Statement of Financial Accounting Standards No. 141, “Business
Combinations” (“Statement No. 141”). As a result, these acquisitions will affect
our future results of operations in significant respects. The aggregate
acquisition consideration has been allocated to the tangible and intangible
assets acquired and liabilities assumed by us based upon their respective fair
values as of the acquisition date. A significant portion of the acquisition
consideration was allocated to amortizable intangible assets which will result
in an increase in amortization expense in the periods following the
acquisitions. In addition, due to the effects of the increased borrowings to
finance the acquisitions, our interest expense will increase significantly
in
the periods following the acquisitions. For additional information, see
“Liquidity and Capital Resources” contained in this Item 7, “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations.”
Critical
Accounting Policies and Estimates
The
Company’s significant accounting policies are described in the notes to the
audited financial statements included elsewhere in this Annual Report on Form
10-K. Both the Company and Prestige Brands International, LLC utilize the same
critical accounting policies. While all significant accounting policies are
important to our
-29-
consolidated
financial statements, some of these policies may be viewed as being critical.
Such policies are those that are both most important to the portrayal of our
financial condition and results from operations and require our most difficult,
subjective and complex estimates and assumptions that affect the reported
amounts of assets, liabilities, revenues, expenses or the related disclosure
of
contingent assets and liabilities. These estimates are based upon our historical
experience and on various other assumptions that we believe to be reasonable
under the circumstances. Actual results may differ materially from these
estimates under different conditions. The most critical accounting policies
are
as follows:
Revenue
Recognition
We
comply
with the provisions of Securities and Exchange Commission Staff Accounting
Bulletin 104 “Revenue Recognition,” which states that revenue should be
recognized when the following revenue recognition criteria are met: (1)
persuasive evidence of an arrangement exists; (2) the product has been shipped
and the customer takes ownership and assumes the risk of loss; (3) the selling
price is fixed or determinable; and (4) collection of the resulting receivable
is reasonably assured. We have determined that the transfer of risk of loss
generally occurs when product is received by the customer, and, accordingly
recognizes revenue at that time. Provision
is made for estimated customer discounts and returns at the time of sale based
on the Company’s historical experience.
As
is
customary in the consumer products industry, we participate in the promotional
programs of our customers to enhance the sale of our products. The
cost
of these promotional programs varies based on the actual number of units sold
during a finite period of time. The Company estimates the cost of such
promotional programs at their inception based on historical experience and
current market conditions and reduces sales by such estimates. These
promotional programs consist of direct to consumer incentives such as coupons
and temporary price reductions, as well as incentives to our customers, such
as
slotting and display fees, and cooperative advertising. We do not provide
incentives to customers for the acquisition of product in excess of normal
inventory quantities since such incentives increase the potential for future
returns, as well as reduce sales in the subsequent fiscal periods.
Estimates
of costs of promotional programs are based on (i) historical sales experience,
(ii) the current offering, (iii) forecasted data, (iv) current market
conditions, and (v) communication with customer purchasing/marketing personnel.
At the completion of the promotional program, the estimated amounts are adjusted
to actual results. While our promotional expense for 2006 was $13.3 million,
we
participated in 4,700 promotional campaigns, resulting in an average cost of
$2,800 per campaign. Of such amount, only 845 payments were in excess of $5,000.
Management believes that the estimation methodologies employed, combined with
the nature of the promotional campaigns, makes the likelihood remote that its
obligation would be misstated by a material amount. However, for illustrative
purposes, a one percentage point change in the estimated promotional program
rate at March 31, 2006 would adversely affect our 2006 sales and operating
income by approximately $100,000 and $100,000, respectively. Net income would
be
adversely affected by approximately $10,000.
We
also
periodically run couponing programs in Sunday newspaper inserts or as on-package
instant redeemable coupons. We utilize a national clearing house to process
coupons redeemed by customers. At the time a coupon is distributed, a provision
is made based upon historical redemption rates for that particular product,
information provided as a result of the clearing house’s experience with coupons
of similar dollar value, the length of time the coupon is valid, and the
seasonality of the coupon drop, among other factors. During the 2006, we had
20
coupon events. The amount expensed and accrued for these events during the
year
was $2.7 million, of which $2.4 million was redeemed during the
year.
Allowances
for Product Returns
Due
to
the nature of the consumer products industry, we are required to estimate future
product returns. Accordingly, the Company records an estimate of product returns
concurrent with the recording of sales. Such estimates are made after analyzing
(i) historical return rates, (ii) current economic trends, (iii) changes in
customer demand, (iv) product acceptance, (v) seasonality of our product
offerings, and (vi) the impact of changes in product formulation, packaging
and
advertising.
We
construct our returns analysis by looking at the previous year’s return history
for each brand. Subsequently, each month, we estimate our current return rate
based upon an average of the previous six month return rate and reviews that
calculated rate for reasonableness giving consideration to the other factors
described above. Our
-30-
historical
return rate has been relatively stable; for example, for 2006, 2005 and 2004,
returns represented 3.5%, 3.6%, and 3.6%, respectively, of gross sales. At
March
31, 2006 and 2005, the
allowance for sales returns was $1.9 million and $1.7 million,
respectively.
While
we
utilize the methodology described above to estimate product returns, actual
results may differ materially from our estimates, causing our future financial
statements to be adversely affected. Among the factors that could cause a
material change in the estimated return rate would be significant unexpected
returns with respect to a product or products that comprise a significant
portion of our revenues. Based upon the methodology described above and our
actual returns’ experience, management believes the likelihood of such an event
is remote. As noted, over the last three years, our actual product return rate
has stayed within 0.1% of gross sales. A change of 0.1% in our estimated return
rate would have adversely affected our reported sales and operating income
for
2006 by approximately $300,000. Net income would have been affected by
approximately $200,000.
Allowances
for Obsolete and Damaged Inventory
We
value
our inventory at the lower of cost or market value. Accordingly, we reduce
our
inventories for the diminution of value resulting from product obsolescence,
damage or other issues affecting marketability equal to the difference between
the cost of the inventory and its estimated market value. Factors utilized
in
the determination of estimated market value include (i) current sales data
and
historical return rates, (ii) estimates of future demand, (iii) competitive
pricing pressures, (iv) new product introductions, (v) product expiration dates,
and (vi) component and packaging obsolescence.
Many
of
our products are subject to expiration dating. As a general rule our customers
will not accept goods with expiration dating of less than 12 months. To monitor
this risk, management utilizes a detailed compilation of inventory with
expiration dating between zero and 15 months and reserves for 100% of the cost
of any item with expiration dating of 12 months or less. At March 31, 2006
and
2005, the allowance for obsolete and slow moving inventory represented 3.0%
and
5.8%, respectively, of total inventory. Inventory obsolescence costs charged
to
operations for the years ended March 31, 2006, 2005 and 2004 were 0.2%, 0.3%,
and 0.6% of net sales, respectively. A change of 0.1% in our obsolescence
charges would have adversely affected our reported operating income for 2006
by
approximately $300,000 and our net income for that year by approximately
$200,000.
Allowance
for Doubtful Accounts
In
the
ordinary course of business, we grant non-interest bearing trade credit to
our
customers on normal credit terms. We maintain an allowance for doubtful accounts
receivable which is based upon our historical collection experience and expected
collectibility of the accounts receivable. In an effort to reduce our credit
risk, we (i) establish credit limits for all of our customer relationships,
(ii)
perform ongoing credit evaluations of our customers’ financial condition, (iii)
monitor the payment history and aging of our customers’ receivables, and (iv)
monitor open orders against an individual customer’s outstanding receivable
balance.
We
establish specific reserves for those accounts which file for bankruptcy, have
no payment activity for 180 days or have reported major negative changes to
their financial condition. The allowance for bad debts at March 31, 2006 and
2005 amounted to 0.3% and 0.7%, respectively, of accounts receivable. Bad debt
expense for 2006, 2005 and 2004 was 0.0%, 0.0%, and 0.1% of net sales,
respectively.
While
management believes that it is diligent in its evaluation of the adequacy of
the
allowance for doubtful accounts, an unexpected event, such as the bankruptcy
filing of a major customer, could have an adverse effect on our future financial
statements. A 0.1% increase in our bad debt expense would have resulted in
a
decrease in 2006 reported operating income by approximately $300,000 and a
decrease in our 2006 reported net income of approximately $200,000.
-31-
Valuation
of Intangible Assets and Goodwill
Goodwill
and intangible assets amounted to $935.1 million and $903.3 million at
March 31,
2006 and 2005, respectively. As of March 31, 2006, goodwill and intangible
assets were apportioned among our three operating segments as
follows:
|
Over-the-Counter
Drug
|
Personal
Care
|
Household
Cleaning
|
Consolidated
|
||||||||||
|
Goodwill
|
$
|
222,635
|
$
|
2,751
|
$
|
72,549
|
$
|
297,935
|
|||||
|
Intangible
assets
|
|||||||||||||
|
Indefinite
lived
|
374,070
|
--
|
170,893
|
544,963
|
|||||||||
|
Finite
lived
|
71,888
|
20,313
|
33
|
92,234
|
|||||||||
|
445,958
|
20,313
|
170,926
|
637,197
|
||||||||||
|
$
|
668,593
|
$
|
23,064
|
$
|
243,475
|
$
|
935,132
|
||||||
Our
Clear Eyes, New-Skin, Chloraseptic
and
Compound
W
brands
comprised the majority of the value of the intangible assets within
the
Over-The-Counter segment. Denorex,
Cutex and Prell
comprised substantially all of the intangible asset value within the
Personal
Care segment. The Comet,
Spic and Span
and
Chore
Boy
brands
comprised substantially all of the intangible asset value within the
Household
Cleaning segment.
Goodwill
and intangible assets comprise substantially all of our assets. Goodwill
represents the excess of the purchase price over the fair value of
assets
acquired and liabilities assumed in a purchase business combination.
Intangible
assets generally are our trademarks and brand names. When we acquire
a brand, we
are required to make judgments regarding the value assigned to the
associated
intangible assets as well as their respective useful lives. Management
considers
many factors, both prior to and after, the acquisition of an intangible
asset in
determining the value, as well as the useful life assigned to, each
intangible
asset that the Company acquires or continues to own and promote. The
most
significant factors are:
| · |
Brand
History
|
A
brand
that has been in existence for a long period of time (e.g., 25, 50
or 100 years)
generally warrants a higher valuation and longer life (sometimes indefinite)
than a brand that has been in existence for a very short period of
time. A brand
that has been in existence for an extended period of time generally
has been the
subject of considerable investment by its previous owner(s) to support
product
innovation and advertising and promotion.
| · |
Market
Position
|
Consumer
products that rank number one or two in their respective market generally
have
greater name recognition and are known as quality product offerings,
which
warrant a higher valuation and longer life than products that lag in
the
marketplace.
| · |
Recent
and Projected Sales Growth
|
Recent
sales results present a snapshot as to how the brand has performed
in the most
recent time periods and represent another factor in the determination
of brand
value. In addition, projected sales growth provides information into
the
strength and potential longevity of the brand. A brand that has both
strong
current and projected sales generally warrants a higher valuation and
a longer
life than a brand that has weak or declining sales. Similarly, consideration
is
given to the potential investment, in the form of advertising and promotion
that
is required to reinvigorate a brand that has fallen from favor.
| · |
History
of and Potential for Product
Extensions
|
Consideration
also is given to the product innovation that has occurred during the
brand’s
history and the potential for continued product innovation that will
determine
the brand’s future. Brands that can be continually enhanced by new product
offerings generally warrant a higher valuation and longer life than
a brand that
has always “followed the leader”.
To
assist
in the valuation process, management engages an independent professional
to
provide an evaluation of the acquired intangible. Upon consideration
of the
factors described above, as well as current economic conditions and
changing
consumer behavior, management prepares a determination of the intangible’s value
and
-32-
useful
life based on its analysis of the requirements of Statements No. 141 and
No.
142. Under Statement No. 142, goodwill and indefinite-lived intangible assets
are no longer amortized, but must be tested for impairment at least annually.
Intangible assets with finite lives are amortized over their respective
estimated useful lives and must also be tested for impairment.
On
an
annual basis, or more frequently if conditions indicate that the carrying
value
of the asset may not be recovered, management performs a review of both the
values and useful lives assigned to goodwill and intangible assets and tests
for
impairment.
Finite-Lived
Intangible Assets
As
mentioned above, management performs an annual review, or more frequently
if
necessary, to ascertain the impact of events and circumstances on the estimated
useful lives and carrying values of our trademarks and trade names. In
connection with this analysis, management:
| · |
Reviews
period-to-period sales and profitability by
brand
|
| · |
Analyzes
industry trends and projects brand growth
rates
|
| · |
Prepares
annual sales forecasts
|
| · |
Evaluates
advertising effectiveness
|
| · |
Analyzes
gross margins
|
| · |
Reviews
contractual benefits or limitations
|
| · |
Monitors
competitors’ advertising spend and product
innovation
|
| · |
Prepares
projections to measure brand viability over the estimated useful
life of
the intangible asset
|
| · |
Considers
regulatory environment, as well as industry
litigation
|
Should
analysis of any of the aforementioned factors warrant a change in the estimated
useful life of the intangible asset, management will reduce the estimated
useful
life and amortize the carrying value prospectively over the shorter remaining
useful life. Management’s projections are utilized to assimilate all of the
facts, circumstances and expectations related to the trademark or trade name
and
estimate the cash flows over its useful life. In the event that the long-term
projections indicate that the carrying value is in excess of the undiscounted
cash flows expected to result from the use of the intangible assets, management
is required to record an impairment charge. Once that analysis is completed,
a
discount rate is applied to the cash flows to estimate fair value. The
impairment charge is measured as the excess of the carrying amount of the
intangible asset over fair value as calculated using the discounted cash
flow
analysis. Future events, such as competition, technological advances and
reductions in advertising support for our trademarks and trade names could
cause
subsequent evaluations to utilize different assumptions.
Indefinite-Lived
Intangible Assets
In
a
manner similar to finite-lived intangible assets, on an annual basis, or
more
frequently if necessary, management analyzes current events and circumstances
to
determine whether the indefinite life classification for a trademark or trade
name continues to be valid. Should circumstance warrant a finite life, the
carrying value of the intangible asset would then be amortized prospectively
over the estimated remaining useful life.
In
connection with this analysis, management also tests the indefinite-lived
intangible assets for impairment by comparing the carrying value of an
intangible asset to its estimated fair value. Since quoted market prices
are
seldom available for trademarks and trade names such as ours, we utilize
present
value techniques to estimate fair value. Accordingly, management’s projections
are utilized to assimilate all of the facts, circumstances and expectations
related to the trademark or trade name and estimate the cash flows over its
useful life. In performing this analysis, management considers the same types
of
information as listed above in regards to finite-lived intangible assets.
Once
that analysis is completed, a discount rate is applied to the cash flows
to
estimate fair value. Future events, such as competition, technological advances
and reductions in advertising support for our trademarks and trade names
could
cause subsequent evaluations to utilize different assumptions.
Goodwill
As
part
of its annual test for impairment of goodwill, management estimates the
discounted cash flows of each reporting unit, which is one level below the
operating segment level, to estimate their respective fair values. In performing
this analysis, management considers the same types of information as listed
above in regards to finite-lived intangible assets. In the event that the
carrying amount of the reporting unit exceeds the fair value, management
would
then be required to allocate the estimated fair value of the assets and
liabilities of the reporting unit as if the unit was acquired in a business
combination, thereby revaluing the carrying amount of goodwill. In a manner
similar to indefinite-lived assets, future events, such as competition,
technological advances and reductions in advertising support for our trademarks
and trade names could cause subsequent evaluations to utilize different
assumptions.
In
estimating the value of trademarks and trade names, as well as goodwill,
management in 2006, has applied a discount rate of 10.3%, the Company’s current
weighted-average cost of funds, to the estimated cash flows; however that
rate,
as well as future cash flows may be influenced by such factors, including
(i)
changes in interest rates, (ii) rates of inflation, or (iii) sales reductions.
In the event that the carrying value exceeded the estimated fair value of
either
intangible assets or goodwill, we would be required to recognize an impairment
charge. Additionally, continued decline of the fair value ascribed to an
intangible asset or a reporting unit caused by external factors may require
future impairment charges.
In
2006,
we recorded non-cash charges related to the impairment of intangible assets
and
goodwill of the Personal Care segment of $7.4 million and $1.9 million,
respectively, because the carrying amounts of these “branded” assets exceeded
their fair market values primarily as a result of declining sales caused
by
product competition. Should the fair values of goodwill and intangible assets
continue to be adversely affected in 2007 as a result of declining sales
or
margins caused by competition, technological advances or reductions in
advertising and promotional expenses, the Company may be required to record
additional impairment charges. There were no impairments of goodwill or
intangible assets during 2005 or 2004.
Stock-Based
Compensation
During
2006, we adopted FASB Statement No. 123(R), “Share-Based Payment” (“Statement
No. 123(R)”) with the initial grants of restricted stock and options to purchase
common stock to employees and directors in accordance with the provisions of
our
2005 Long-Term
Equity Incentive Plan (the “Plan”). Statement No. 123(R) requires us to measure
the cost of services to be rendered based on the grant-date fair value of the
equity award. Compensation expense is to be recognized over the period which
an
employee is required to provide service in exchange for the award, generally
referred to as the requisite service period. Information utilized in the
determination of fair value includes the following:
| · |
Type
of instrument (i.e.: restricted shares vs. an option or
warrant),
|
| · |
Strike
price of the instrument,
|
| · |
Market
price of the Company’s common stock on the date of
grant,
|
| · |
Discount
rates,
|
| · |
Duration
of the instrument, and
|
| · |
Volatility
of the Company’s common stock in the public
market.
|
Additionally,
management must estimate the expected attrition rate of the recipients to enable
it to estimate the amount of non-cash compensation expense to be recorded in
our
financial statements. While management uses diligent analysis to estimate the
respective variables, a change in assumptions or market conditions, as well
as
changes in the anticipated attrition rates, could have a significant impact
on
the future amounts recorded as non-cash compensation expense. We recorded
non-cash compensation charges of $0.4 million during the third and fourth
quarters of 2006. Assuming no changes in assumptions and no awards authorized
by
the Compensation Committee of the Board of Directors during 2007, we will record
non-cash compensation expense of approximately $600,000. There were no
stock-based compensation charges incurred during 2005.
Recent
Accounting Pronouncements
In
March 2005, the FASB issued FASB Interpretation No. 47, “Accounting
for Conditional Asset Retirement Obligations” (“FIN 47”) which clarifies
guidance provided by Statement No. 143, “Accounting for Asset Retirement
Obligations.” FIN 47 is effective for the Company no later than March 31,
2006. The adoption of FIN 47 had no impact on our consolidated financial
position, results of operations or cash flows.
In
May
2005, the FASB issued Statement of Financial Accounting Standards No. 154,
“Accounting Changes and Error Corrections” (“Statement No. 154”) which replaces
Accounting Principles Board Opinion No. 20, “Accounting Changes” (“APB Opinion
No. 20”) and FASB Statement No. 3, “Reporting Accounting Changes in Interim
Financial Statements.” Statement No. 154 requires that voluntary changes in
accounting principle be applied retrospectively to the balances of assets and
liabilities as of the beginning of the earliest period for which
-33-
retrospective
application is practicable and that corresponding adjustments be made to the
opening balance of retained earnings. APB Opinion No. 20 had required that
most
voluntary changes in accounting principle be recognized by including in net
income the cumulative effect of changing to the new principle. Statement No.
154
is effective for all accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005.
Management
has reviewed and continues to monitor the actions of the various financial
and
regulatory reporting agencies and is currently not aware of any pronouncement
that could have a material impact on our consolidated financial position,
results of operations or cash flows.
Results
of Operations of Prestige Brands Holdings, Inc.
The
following table sets forth the unaudited net sales, gross profit and
contribution margin, defined as gross profit less advertising and promotion,
or
A&P, by segment:
|
Year
Ended March 31
|
|||||||
|
(In
Thousands)
|
2006
|
2005
|
|||||
|
Net
Sales
|
|
|
|||||
|
Over-the-counter
drug
|
$
|
160,942
|
$
|
159,010
|
|||
|
Personal
care
|
27,925
|
32,162
|
|||||
|
Household
cleaning
|
107,801
|
97,897
|
|||||
|
Total
net sales
|
$
|
296,668
|
$
|
289,069
|
|||
|
|
|||||||
|
Gross
Profit
|
|||||||
|
Over-the-counter
drug
|
$
|
102,451
|
$
|
98,440
|
|||
|
Personal
care
|
12,074
|
15,762
|
|||||
|
Household
cleaning
|
42,713
|
35,858
|
|||||
|
Total
gross profit
|
$
|
157,238
|
$
|
150,060
|
|||
|
|
|||||||
|
Contribution
Margin
|
|||||||
|
Over-the-counter
drug
|
$
|
80,027
|
$
|
79,897
|
|||
|
Personal
care
|
8,911
|
10,264
|
|||||
|
Household
cleaning
|
36,218
|
30,202
|
|||||
|
Total
contribution margin
|
$
|
125,156
|
$
|
120,363
|
|||
Fiscal
2006 compared to Fiscal 2005
Net
Sales
Net
sales
increased by $7.6 million, or 2.6%, to $296.7 million for 2006 from $289.1
million for 2005. The sales increase was driven by the acquisitions of
Vetco,
Inc. and Dental Concepts, LLC in October 2004 and November 2005, respectively,
as well as the Chore
Boy
trademark in October 2005. The Over-the-Counter Drug segment had net sales
of
$160.9 million for 2006, an increase of $1.9 million, or 1.2%, over net
sales of
$159.0 million for 2005. The Personal Care segment had net sales of $27.9
million for 2006, a $4.2 million, or 13.2%, decrease from net sales of
$32.2
million for 2005. The Household Cleaning segment had sales of $107.8 million
for
2006, a $9.9 million, or 10.1%, increase over net sales of $97.9 million
for
2005.
Over-the-Counter
Drug Segment
The
increase in net sales of $1.9 million for the Over-the-Counter segment
was a
result of sales related to The
Doctor’s
brand,
which was acquired in the Dental Concepts acquisition in November 2005,
a full
year of revenue from the Little
Remedies
brand,
which was acquired in the Vetco acquisition in October 2004, as well as
the
launch of the Clear
eyes
for Dry
eyes product line at the end of 2005. Partially offsetting the increases
related
to the acquisitions and Clear
eyes
were
declines in Chloraseptic,
Compound
W,
New-Skin
and
Murine.
The
decline in Chloraseptic
was
generally confined to the quarter ended December 31, 2005, and resulted
from a
formulation issue related to stability of several batches of the relief
strips
product line. Declines in Compound
W
and
New-
-34-
Skin
were
related to softness in the retail wart remover and liquid bandage categories,
respectively. The decline in Murine
was a
result of decreased consumer consumption and lost distribution.
Personal
Care Segment
The
Personal Care segment showed a net sales decline of $4.2 million, or 13.2%,
to
$27.9 million for 2006 from $32.2 million for 2005. The sales decrease
was
primarily attributable to the continued decline in consumer consumption
of the
Denorex
brand as
a result of increased competition in the dandruff shampoo category and
lower
Cutex sales due to softness in the nail polish remover category as more
women
choose to have their nails manicured at salons.
Household
Cleaning Segment
The
Household Cleaning segment sales increased $9.9 million, or 10.1%, to $107.8
million for 2006 from $97.9 million for 2005. The increase in sales over
the
prior year resulted from the Chore
Boy
acquisition, as well as sales growth in 2006 from both the Comet
and
Spic
and Span
brands.
The
Comet
sales
increase was driven by strong retail consumption of powder and sprays and
expanded distribution of Comet
Cream.
The
Spic
and Span
sales
increase was driven by increased distribution within the mass market channel
of
distribution.
Gross
Profit
Gross
profit increased by $7.1 million, or 4.8%, to $157.2 million for 2006 from
$150.1 million for 2005. As a percentage of sales, gross profit increased
to
53.0% for 2006 from 51.9% in 2005. Excluding the inventory step-up costs
of $0.2
million in 2006 and $5.3 million in 2005, gross profit as percent of sales
would
have decreased to 53.1% for 2006 from 53.8% for 2005. The decrease in gross
profit as a percentage of net sales resulted primarily from a shift in
the sales
mix toward the Household Cleaning segment. The Household Cleaning segment
has a
lower gross margin as a percent of sales relative to the Over-the-Counter
and
Personal Care segments.
Over-the-Counter
Drug Segment
The
Over-the-Counter Drug segment’s gross profit increased by $4.0 million, or 4.1%,
to $102.4 million for 2006 from $98.4 million for 2005. As a percentage
of
sales, gross profit increased to 63.6% for 2006 from 61.9% in 2005. Excluding
the inventory step-up costs of $0.2 million in 2006 and $2.7 million in
2005,
gross profit as a percent of sales would have increased to 63.8% for 2006
from
63.6% for 2005. The increase was primarily a result of a favorable product
mix,
partially offset by higher transportation, packaging and commodity
costs.
Personal
Care Segment
Gross
profit for the Personal Care segment declined by $3.7 million, or 23.4%,
to
$12.1 million for 2006 from $15.8 million for 2005. The decrease in gross
profit
was due to the sales decline, as well as higher product and transportation
costs. The increased product costs were the result of higher packaging
and raw
material costs and the introduction of a “value” size for Denorex
in the
third quarter of 2005.
Household
Cleaning Segment
The
Household Cleaning segment’s gross profit increased by $6.8 million, or 19.1%,
to $42.7 million for 2006 from $35.9 million for 2005. As a percentage
of sales,
gross profit increased to 39.6% for 2006 from 36.6% in 2005. Excluding
charges
related to the inventory step-up of $2.4 million for 2005, gross profit
as a
percentage of sales would have been 39.6% for 2006 compared to 39.1% for
2005.
An increase in transportation costs in 2006 was offset by a favorable product
mix.
Contribution
Margin
Contribution
margin increased by $4.8 million, or 4.0%, to $125.2 million for 2006 from
$120.4 million for 2005. The increase in contribution margin was due to
the
increased gross profit discussed above and a reduction of advertising and
promotion spending in the Personal Care segment, partially offset by increased
advertising and promotion spending on the core brands in the Over-the-Counter
Drug segment and increases associated with the acquisitions of the Little
Remedies,
Chore
Boy
and
The
Doctor’s
brands.
Over-the-Counter
Drug Segment
Contribution
margin for the Over-the-Counter Drug segment increased by $0.1 million,
or 0.2%,
to $80.0 million for 2006 from $79.9 million for 2005. The increase in
contribution margin was due to the increased gross profit discussed
above, offset by increased spending behind Chloraseptic,
Clear
eyes,
Little
Remedies
and
Compound
-35-
W,
as well
as by spending behind The
Doctor’s
brand.
Personal
Care Segment
Contribution
margin for the Personal Care segment was $8.9 million for 2006, $1.4 million,
or
13.2%, below 2005 of $10.3 million. The decrease in contribution margin
was due
to the decrease in gross margin discussed above, partially offset by a
reduction
of $2.3 million of advertising and promotion expenses. The reduction in
advertising and promotion expenses resulted primarily from the reduction
of
media support behind the Denorex
brand.
Household
Cleaning Segment
Contribution
margin for the Household Cleaning segment increased by $6.0 million, or
19.9%,
to $36.2 million for 2006 from $30.2 million for 2005. The increase in
contribution margin was due to the increased gross profit discussed above,
partially offset by an increase in advertising and promotion expenses.
The
increase in advertising and promotion expenses was a result of increased
Comet
media
spending and advertising and promotion expenditures in support of the
Chore
Boy
brand.
General
and Administrative Expenses
General
and administrative expenses increased by $0.9 million, or 4.6%, to $21.1
million
for 2006 from $20.2 million for 2005. The increase was due to accounting
and
legal costs associated with the Company’s restatement of financial results,
initial year testing in connection with compliance with the provisions
of
Section 404 of the Sarbanes-Oxley Act, increased staffing and stock-based
compensation expense resulting from the application of Statement No. 123(R).
These increases were partially offset by a significant reduction in employee
incentive compensation as a result of the Company’s financial performance in
2006 not meeting internal objectives.
Depreciation
and Amortization Expense
Depreciation
and amortization expense increased by $1.0 million, or 10.2%, to $10.8
million
for 2006 from $9.8 million for 2005. The increase was primarily due to
amortization of intangible assets acquired with the Vetco and Dental Concepts
acquisitions.
Impairment
of Intangible Assets and Goodwill
During
the fourth quarter of 2006, we recorded non-cash charges related to the
impairment of certain intangible assets and goodwill of the Personal Care
segment of $7.4 million and $1.9 million, respectively. We performed our
impairment analyses of intangible assets and goodwill and determined, in
accordance with FASB Statements No.142 and 144, that the carrying amounts
of
these “branded” assets exceeded their fair market values as a result of
declining sales.
Net
Interest Expense
Net
interest expense was $36.3 million in 2006 compared to $44.7 million in
2005.
The decrease in interest expense of $8.4 million, or 18.7%, was due to
the
reduction of indebtedness outstanding, partially offset by higher interest
rates
on the remaining indebtedness. In February 2005, the Company significantly
reduced debt with the proceeds from its IPO.
Loss
on Extinguishment of Debt
For
2006
the loss on extinguishment of debt was $0, compared to $26.9 million for
2005.
The $26.9 million loss on extinguishment of debt consisted of $19.3 million
of
charges related to the $184.0 million of debt retired in connection with
our IPO
and $7.6 million related to the write-off of deferred financing costs associated
with the borrowings retired in connection with the Medtech
acquisition.
Income
Taxes
The
provision for income taxes in 2006 was $21.3 million, with an effective
rate of
44.7%, compared to a provision of $8.6 million for 2005, with an effective
rate
of 45.6%. The provision for income taxes in 2006 includes a $2.0 million
charge,
recorded during the quarter ended March 31, 2006, resulting from an increase
in
the state tax rate associated with the Company’s deferred tax liability. The
increase resulted from the completion of a state tax nexus study during
the
quarter. The provision for income taxes in 2005 includes a $1.2 million
charge,
recorded during the quarter ended March 31, 2005, resulting from an increase
in
the Company’s graduated federal income tax rate from 34% to 35% related to its
deferred income tax liability.
-36-
Results
of Operations of Prestige Brands Holdings, Inc. and Combined Medtech
Holdings, Inc. and The Denorex Company (the
“predecessor”)
The
following table sets forth the unaudited net sales, gross profit and
contribution margin, defined as gross profit less advertising and promotion,
or
A&P, by segment:
|
|
Year
Ended March 31
|
|||||||||
|
|
2005
|
2004
|
2004
|
|||||||
|
(In
Thousands)
|
(successor
basis)
|
(combined
basis
(1))
|
(pro
forma
basis
(2))
|
|||||||
|
Net
Sales
|
(Unaudited)
|
|||||||||
|
Over-the-counter
drug
|
$
|
159,010
|
$
|
55,000
|
$
|
137,758
|
||||
|
Personal
care
|
32,162
|
28,496
|
34,863
|
|||||||
|
Household
cleaning
|
97,897
|
1,395
|
96,170
|
|||||||
|
Other
|
—
|
387
|
387
|
|||||||
|
Total
net sales
|
$
|
289,069
|
$
|
85,278
|
$
|
269,178
|
||||
|
Gross
Profit
|
||||||||||
|
Over-the-counter
drug
|
$
|
98,440
|
$
|
34,133
|
$
|
86,959
|
||||
|
Personal
care
|
15,762
|
14,114
|
16,804
|
|||||||
|
Household
cleaning
|
35,858
|
438
|
35,815
|
|||||||
|
Other
|
—
|
387
|
387
|
|||||||
|
Total
gross profit
|
$
|
150,060
|
$
|
49,072
|
$
|
139,965
|
||||
|
|
||||||||||
|
Contribution
Margin
|
||||||||||
|
Over-the-counter
drug
|
$
|
79,897
|
$
|
28,208
|
$
|
70,113
|
||||
|
Personal
care
|
10,264
|
8,757
|
10,315
|
|||||||
|
Household
cleaning
|
30,202
|
392
|
25,832
|
|||||||
|
Other
|
—
|
387
|
387
|
|||||||
|
Total
contribution margin
|
$
|
120,363
|
$
|
37,744
|
$
|
106,647
|
||||
(1) Includes
combined results for the period from April 1, 2003 through February 5,
2004 (predecessor basis) and the period from February 6, 2004 through
March 31, 2004 (successor basis).
(2) Use
of
the term “pro forma” in this table and throughout the following discussion
reflects the results of our operations as if the Spic and Span acquisition
and
the Bonita Bay acquisition had both been completed on April 1, 2003,
without giving effect to the Vetco acquisition, which is not considered
material
to the pro forma results.
Fiscal
2005 compared to Fiscal 2004
The
information presented above for the analysis of net sales, gross profit
and
contribution margin for 2005 compared to 2004 was derived by comparing
the
financial statements for 2005 of Prestige Holdings to (1) the sum of the
historical financial statements of the predecessor company for the period
from
April 1, 2003 to February 5, 2004 and (2) the results of Prestige
Holdings for the period from February 6, 2004 through March 31,
2004.
Net
Sales
Net
sales
increased by $203.8 million, or 239.0%, to $289.1 million for 2005 from
$85.3
million for 2004. The sales increase was driven by the acquisitions of
Spic and
Span, Bonita Bay and Vetco in March 2004, April 2004 and
October 2004, respectively. The Over-the-Counter Drug segment had net sales
of $159.0 million for 2005, an increase of $104.0 million, or 189.1%, over
net
sales of $55.0 million for 2004. The Household Cleaning segment, which
was
acquired as part of the Spic and Span and Bonita Bay acquisitions, had
sales of
$97.9 million for 2005, a $96.5 million increase over net sales of $1.4
million
for 2004. The Personal Care segment had net sales of $32.2 million for
2005, a
$3.7 million, or 12.9%, increase over net sales of $28.5 million for 2004.
On a
pro forma basis, net sales increased by $19.9 million or 7.4%, to $289.1
million
for 2005 from $269.2 million for 2004. The increase in overall net sales
was
driven by the Over-the-Counter Drug segment.
-37-
Over-the-Counter
Drug Segment
On
a pro
forma basis, the increase in overall net sales was driven by the
Over-the-Counter Drug segment which had net sales of $159.0 million for
2005,
compared to pro forma net sales of $137.8 million in 2004, an increase
$21.2
million or 15.4%. The strong sales performance compared to 2004 was led
by
Compound W,
which
benefited from very strong
Freeze Off
sales,
Clear eyes,
and
Chloraseptic.
Chloraseptic
had a
very strong fourth quarter due to the “late” flu season in 2005 compared to an
“early” flu season in 2004. The
Little Remedies
brand,
acquired in the Vetco acquisition in October 2004, contributed
approximately $8.0 million to sales in 2005.
Personal
Care Segment
On
a pro
forma basis, the Personal Care segment showed a sales decline of $2.7 million,
or 7.7%, to $32.2 million for 2005 from $34.9 million for 2004. The sales
decrease was driven by declines for the
Cutex
and
Denorex
brands.
The
Denorex
sales
decline reflected a loss in market share during 2005. The
Cutex
sales
decline was reflective of a decline for the entire nail polish remover
category
for 2005 versus 2004.
Household
Cleaning Segment
On
a pro
forma basis, the Household Cleaning segment showed a sales increase of
$1.7
million, or 1.8%, to $97.9 million for 2005 from pro forma net sales of
$96.2
million for 2004. Both the
Comet
and
Spic
and Span
brands
showed sales increases over the prior year. The
Comet
sales
increase was driven by increases for the Powder
line and for the
Comet
cream
product, as distribution of that item was increased. Partially offsetting
those
increases were declines for the discontinued
Clean and Flush
disposable toilet bowl brush system. The
Spic
and Span
sales
increase was driven by increased distribution, particularly in the dollar
store
channel.
Gross
Profit
Gross
profit increased by $101.0 million, or 205.8%, to $150.1 million for 2005
from
$49.1 million for 2004. The increase was due to the sales increase discussed
above. As a percentage of sales, gross profit declined to 51.9% for 2005
from
57.5% for 2004. The decrease in gross profit as a percentage of net sales
was
primarily due to the acquisition of the
Spic
and Span
and
Comet
brands
in the Household Products segment at the end of 2004 and the beginning
of 2005,
respectively. Gross profit for the
Spic
and Span
and
Comet
brands
is lower than the gross profit for the Over-the-Counter Drug and Personal
Care
segments.
On
a pro
forma basis, gross profit increased by $10.1 million, or 7.2%, to $150.1
million
for 2005 from $140.0 million for 2004. The increase in gross profit was
due to
the sales increase discussed above. Gross profit as a percentage of sales
was
51.9% for 2005, which was slightly below the gross profit percentage of
52.0%
for 2004. The decline was almost entirely due to the effect of the inventory
step-up resulting from the acquisition of the predecessor business by GTCR
in
2004. Excluding the inventory step-up costs of $5.3 million in 2005 and
$3.0
million in 2004 would have resulted in gross profit percentages of 53.7%
for
2005 and 53.1% for 2004.
Over-the-Counter
Drug Segment
On
a pro
forma basis, the Over-the-Counter Drug segment’s gross profit increased by $11.5
million, or 13.2%, to $98.4 million for 2005 from $87.0 million for 2004.
The
increase in gross profit was due to the sales increase discussed above.
As a
percentage of sales, gross profit for 2005 declined to 61.9% from 63.1%
for
2004. The decline in gross profit as a percentage of sales was primarily
due to
sales mix, as
Compound W Freeze Off,
with a
lower gross profit percentage than the average of the Over-the-Counter
Drug
segment, accounted for a larger portion of segment sales in 2005.
Personal
Care Segment
On
a pro
forma basis, gross profit for the Personal Care segment declined by $1.0
million, or 6.2%, to $15.8 million for 2005 from $16.8 million for 2004.
The
decrease in gross profit was due to the sales decline. Gross profit as
a
percentage of sales improved to 49.0% for 2005 from 48.2% for 2004. The
improvement in gross profit as a percentage of sales was due to a favorable
sales mix.
Household
Cleaning Segment
On
a pro
forma basis, the Household Cleaning segment’s gross profit improved slightly to
$35.9 million for 2005 from $35.8 million for 2004. Excluding charges related
to
the inventory step-ups of $2.4 million for 2005 and
-38-
$1.8
million for 2004, gross profit would have been $38.2 million, or 39.1%,
for 2005
compared to $37.6 million, or 39.1%, for 2004.
Contribution
Margin
Contribution
margin increased by $82.6 million, or 218.9%, to $120.4 million for 2005
from
$37.7 million for 2004. The increase in contribution margin was due to
the
increased gross profit discussed above, partially offset by increased
advertising and selling expenses associated with the acquisitions of the
Spic
and Span, Bonita Bay and Vetco brands.
On
a pro
forma basis, contribution margin increased by $13.7 million, or 12.9%,
to $120.4
million for 2005 from $106.6 million for 2004. The increase in contribution
margin was due to the increased gross profit combined with a decrease in
advertising and selling expenses. The decrease in advertising and selling
expenses was primarily due to synergistic savings related to advertising
agency
fees, media buying service fees and sales broker commissions resulting
from the
combination of the Medtech, Spic and Span and Bonita Bay companies in 2005.
In
addition, approximately $2.5 million of advertising and selling expenses
related
to the
Comet Clean and Flush
disposable toilet bowl brush in 2004 were not repeated in 2005.
Over-the-Counter
Drug Segment
Pro
forma
contribution margin for the Over-the-Counter Drug segment increased by
$9.8
million, or 14.0%, to $79.9 million for 2005 from $70.1 million for 2004.
The
increase in pro forma contribution margin was driven by the sales increase
discussed above.
Personal
Care Segment
Pro
forma
contribution margin for the Personal Care segment was flat at $10.3 million
for
both 2005 and 2004.
Household
Cleaning Segment
Pro
forma
contribution margin for the Household Cleaning segment increased by $4.4
million, or 16.9%, to $30.2 million for 2005 from $25.8 million for 2004.
The
increase was driven by the reduction in advertising and selling expenses
resulting from the synergies discussed above and the elimination of support
behind the discontinued
Comet Clean and Flush
product.
General
and Administrative Expenses
General
and Administrative expenses increased by $6.5 million, or 47.2%, to $20.2
million for 2005 from $13.7 million for 2004. The increase was due to the
additional expenses associated with adding the brands acquired in the Spic
and
Span, Bonita Bay and Vetco acquisitions.
On
a pro
forma basis, general and administrative expenses decreased by $6.9 million,
or
25.5%, to $20.2 million for 2005 from $27.1 million for 2004. The decrease
from
2004 resulted from the synergies achieved as a result of the combination
of the
Medtech, Spic and Span and Bonita Bay companies in 2005, and the non-recurrence
of a one time bonus paid to management in 2004 related to the Medtech
acquisition.
Depreciation
and Amortization Expense
Depreciation
and amortization expense increased by $4.4 million, or 80.5%, to $9.8 million
for 2005 from $5.4 million for 2004. The increase was primarily due to
amortization of intangible assets related to acquisitions and an increase
in
depreciation related to the Bonita Bay acquisition.
Net
Interest Expense
Net
interest expense increased by $34.8 million, or 352.6%, to $44.7 million
for
2005 from $9.9 million for 2004. The increase in interest expense was primarily
due to the increased levels of indebtedness outstanding after the acquisitions
referenced above.
Loss
on Extinguishment of Debt
In
2005,
the Company incurred a loss on the extinguishment of debt of $26.9 million,
which consisted of $19.3 million of charges related to the $184.0 million
of
debt retired in connection with our IPO and $7.6 million related to the
write-off of deferred financing costs and discount on debt associated with
the
borrowings retired in connection
with the Medtech acquisition.
-39-
Income
Taxes
The
provision for income taxes for 2005 was $8.6 million, with an effective
rate of
45.6%, compared to a provision of $2.9 million for 2004, with an effective
rate
of 40.2%. The increase in the effective tax rate for year 2005 was primarily
due
to an increase in the Company’s graduated federal income tax rate from 34% to
35% related to its deferred income tax liability. This resulted in a one-time,
non cash charge to income tax expense of approximately $1.2 million in
the
quarter ended March 31, 2005.
Liquidity
and Capital Resources
We
have
historically financed our operations with a combination of internally generated
funds and borrowings. Our principal uses of cash are for operating expenses,
servicing long-term debt, acquisitions, working capital, and capital
expenditures.
|
|
Year
Ended March 31,
|
|||||||||
|
|
2006
|
2005
|
2004
|
|||||||
|
|
(Successor
Basis)
|
(Successor
Basis)
|
(Combined
Basis
(1))
|
|||||||
|
Cash
provided by (used in):
|
|
|
|
|||||||
|
Operating
activities
|
$
|
53,861
|
$
|
51,042
|
$
|
6,137
|
||||
|
Investing
activities
|
(54,163
|
)
|
(425,844
|
)
|
(167,450
|
)
|
||||
|
Financing
activities
|
3,168
|
376,743
|
163,344
|
|||||||
(1) Includes
combined results for the period from April 1, 2003 through February 5,
2004 (predecessor basis) and the period from February 6, 2004 through
March 31, 2004 (successor basis).
Operating
Activities
Fiscal
2006 compared to fiscal 2005
Net
cash
provided by operating activities was $53.9 million for 2006 compared
to $51.0
million for 2005. The $2.9 million increase was primarily due to net
income of
$26.3 million, adjusted for non-cash items of $38.1 million for 2006,
compared
to net income of $10.2 million, adjusted for non-cash items of $48.0
million for
2005. Working capital increased by $10.6 million, exclusive of the impact
of the
Dental Concepts acquisition, for 2006, primarily due to an increase in
accounts
receivable of $1.4 million, inventories of $7.2 million and a decrease
in
accounts payable and accrued expenses of $4.6 million, offset by a reduction
in
prepaid expenses of $2.6 million. The Company’s cash flow from operations
continues to exceed net income due to the substantial non-cash
charges related to impairment of goodwill and intangibles, depreciation
and
amortization of intangibles, increases in deferred income tax liabilities
resulting from the amortization of intangible assets and goodwill for
income tax
purposes, net operating loss carryforwards, and the amortization of certain
deferred financing costs.
Fiscal
2005 compared to fiscal 2004
Net
cash
provided by operating activities was $51.0 million for 2005 compared
to $6.1
million for 2004. The $44.9 million increase was primarily due to net
income of
$10.2 million, adjusted for non-cash items of $47.9 million for 2005,
compared
to net income of $4.4 million, adjusted for non-cash items of $9.8 million
for
2004. Working capital increased by $7.2 million, exclusive of the impact
of the
Bonita Bay acquisition, for 2005, primarily due to an increase in accounts
receivable of $7.2 million, due to the net sales increase during the
period, and
a decrease in accounts payable and accrued expenses of $1.3 million,
offset by a
reduction in inventories of $2.9 million.
Investing
Activities
Fiscal
2006 compared to fiscal 2005
Net
cash
used in investing activities was $54.2 million for 2006 compared to net
cash
used of $425.8 million for 2005. The net cash used in investing activities
for
2006 was primarily for the acquisitions of the Chore
Boy
brand in
October 2005 and Dental Concepts in November 2005. The net cash used
in
investing activities for 2005 was
-40-
primarily
for the acquisitions of Bonita Bay in April 2004 and Vetco in
October 2004.
Fiscal
2005 compared to fiscal 2004
Net
cash
used in investing activities was $425.8 million for 2005 compared to
net cash
used of $167.5 million for 2004. The net cash used in investing activities
for
2005 was primarily for the acquisitions of Bonita Bay in April 2004 and
Vetco in October 2004. The net cash used in investing activities for 2004
was primarily for the acquisitions of Medtech/Denorex in February 2004
and Spic
and Span in March 2004.
Financing
Activities
Fiscal
2006 compared to fiscal 2005
Net
cash
provided by financing activities was $3.2 million for 2006 compared to
$376.7
million for 2005. Net cash provided by financing activities for 2006
was
primarily due to $30.0 million of borrowings on the Company’s revolving credit
facility to finance the purchase of Dental Concepts offset by $23.0 million
of
repayments on the revolving credit facility and $3.7 million of mandatory
principal payments on the term loan. Net cash provided by financing activities
for 2005 was primarily a function of the following events: (i) to finance
the
acquisitions of Bonita Bay and Vetco, the Company borrowed $698.5 million
and
issued preferred units and common units of $58.7 million, (ii) repayment
of the
debt incurred in February 2004 at the time of the Medtech/Denorex
acquisition, the pay down of the revolving credit facility and scheduled
payments on current debt which all totaled $345.5 million, (iii) the
February
2005 IPO raised $416.8 million, and (iv) proceeds of the IPO were used
to repay
$184.0 million of debt, repurchase $199.8 million of senior preferred
units and
class B preferred units, and to repurchase 4.4 million shares of common
stock
for $30.2 million.
Fiscal
2005 compared to fiscal 2004
Net
cash
provided by financing activities was $376.7 million for 2005 compared
to $163.3
million for 2004. Net cash provided by financing activities for 2005
was
primarily due to two events. In 2004, to finance the acquisitions of
Bonita Bay
and Vetco, the Company borrowed $698.5 million and issued preferred units
and
common units of $58.7 million. The increase in debt was partially offset
by
repayment of the debt incurred in February 2004 at the time of the
Medtech/Denorex acquisition, the pay down of the revolving credit facility
and
scheduled payments on current debt which all totaled $345.5 million.
On
February 15, 2005, the initial public offering raised $416.8 million.
Proceeds were used to repay $184.0 million of debt, repurchase $199.8
million of
senior preferred units and class B preferred units, and to repurchase
4.4
million shares of common stock for $30.2 million.
Capital
Resources
In
connection with the Bonita Bay acquisition, our subsidiary, Prestige
Brands, Inc., entered into a senior credit facility and issued senior
subordinated notes. We used borrowings under the senior credit facility
and
proceeds from the issuance of the senior subordinated notes, as well
as proceeds
from the issuance of additional equity securities, to fund the acquisition
purchase price, refinance existing indebtedness and provide funds for
working
capital and general corporate purposes. Prestige Brands, Inc. borrowed
approximately $458.5 million under the senior credit facility in connection
with
the Bonita Bay acquisition and $30.0 million in connection with the Vetco
acquisition.
In
connection with the Bonita Bay acquisition, Prestige Brands, Inc. also
issued $210.0 million of 91/4%
senior
subordinated notes due 2012. The notes are guaranteed by Prestige Brands
International, LLC, our intermediate holding company, and all of its
domestic subsidiaries, other than the issuer (Prestige Brands, Inc.), on a
senior subordinated basis. The indenture governing the notes contains
covenants
restricting specified corporate actions, including, incurrence of indebtedness,
payment of dividends and other specified payments, repurchasing Company
equity
securities in the public markets, making loans and investments, creating
liens,
asset dispositions, acquisitions, changes of control and transactions
with
affiliates.
On
February 15, 2005, our initial public offering of common stock resulted in
net proceeds of $416.8 million. The proceeds were used to repay the $100.0
million outstanding under the Tranche C facility of our senior
credit
-41-
facility
(plus a repayment premium of $3.0 million and accrued interest of
$0.5 million), and to redeem $84.0 million in aggregate principal
amount of our existing 91/4%
senior
subordinated notes (plus a redemption premium of $7.8 million and accrued
interest of $3.3 million). Effective upon the completion of the IPO, we
entered into an amendment to the credit agreement that, among other things,
allows us to increase the indebtedness under our Tranche B facility by
$200.0
million and allows for an increase in our revolving credit facility up
to $60
million.
As
of
March 31, 2006, the Company had an aggregate of $498.6 million of
outstanding indebtedness, which consisted of the following:
| · |
$365.6
million of borrowings under the senior term loan
facility,
|
| · |
$7.0
million under the revolving credit facility, and
|
| · |
$126.0 million
of 91/4% senior subordinated notes due
2012.
|
The
Company had $53.0 million of borrowing capacity available under the revolving
credit facility at such time, as well as $200.0 million available under
the
senior term loan facility.
All
loans
under the Senior Credit Facility bear interest at floating rates, based
on
either the prime rate, or at our option, a the LIBOR rate, plus an applicable
margin. As of March 31, 2006, an aggregate of $372.6 million was
outstanding under the Senior Credit Facility at a weighted average interest
rate
of 7.2%.
On
June 30, 2004, the Company paid $52,000 for a 5% interest rate cap
agreement with a notional amount of $20.0 million. The interest rate
cap
terminates in June 2006. On March 7, 2005, the Company paid $2.3
million for interest rate cap agreements that became effective August 30,
2005, with a total notional amount of $180.0 million and LIBOR cap rates
ranging
from 3.25% to 3.75%. The interest rate cap agreements terminate on May 30,
2006, 2007 and 2008 as to $50.0 million, $80.0 million and $50.0 million,
respectively. The fair value of the interest rate cap agreements was
$3.3
million at March 31, 2006.
The
term
loan facility matures in April 2011. We must make quarterly amortization
payments on the term loan facility equal to 0.25% of the initial principal
amount of the term loan. The revolving credit facility matures and the
commitments relating to the revolving credit facility terminate in
April 2009. The obligations under the senior credit facility are guaranteed
on a senior basis by Prestige Brands International, LLC and all of its
domestic subsidiaries, other than the borrower (Prestige Brands, Inc.), and
are secured by substantially all of our assets.
The
Senior Credit Facility and the indenture governing the Senior Notes contain
various financial covenants, as applicable, including covenants that
require us
to maintain certain leverage ratios, interest coverage ratios and fixed
charge
coverage ratios, as well as covenants restricting us from undertaking
specified
corporate actions, including, asset dispositions, acquisitions, payment
of
dividends and other specified payments, repurchasing the Company’s equity
securities in the public markets, changes of control, incurrence of
indebtedness, creation of liens, making loans and investments and transactions
with affiliates. Specifically, we must:
| · |
have
a leverage ratio of less than 5.25 to 1.0 for the quarter ended
March 31, 2006, decreasing over time to 3.75 to 1.0 for the quarter
ending September 30, 2010, and remaining level
thereafter,
|
| · |
have
an interest coverage ratio of greater than 2.75 to 1.0 for
the quarter
ended March 31, 2006, increasing to 3.25 to 1.0 for the quarter
ending
March 31, 2010, and
|
| · |
have
a fixed charge coverage ratio of greater than 1.5 to 1.0 for
the quarter
ended March 31, 2006, and for each quarter thereafter until
the quarter
ending March 31, 2011.
|
We
were
in compliance with the applicable financial and restrictive covenants
under the
Senior Credit Facility and the indenture governing the Senior Notes at
March 31,
2006.
-42-
Our
principal sources of funds are anticipated to be cash flows from operating
activities and available borrowings under the revolving credit facility
and
Tranche B facility. We believe that these funds will provide us with
sufficient
liquidity and capital resources for us to meet our current and future
financial
obligations, as well as to provide funds for working capital, capital
expenditures and other needs for at least the next 12 months. We regularly
review acquisition opportunities and other potential strategic transactions,
which may require additional debt or equity financing. If additional
financing
is required, there are no assurances that it will be available, or if
available,
that it can be obtained on terms favorable to us or on a basis that is
not
dilutive to our stockholders.
Commitments
As
of
March 31, 2006, we had ongoing commitments under various contractual and
commercial obligations as follows:
|
|
Payments
Due by Period
|
|||||||||||||||
|
(In Millions)
|
Less than
|
1 to 3
|
4 to 5
|
After 5
|
||||||||||||
|
Contractual
Obligations
|
Total
|
1 Year
|
Years
|
Years
|
Years
|
|||||||||||
|
Long-term
debt
|
$
|
498.6
|
$
|
3.7
|
$
|
7.5
|
$
|
14.6
|
$
|
472.8
|
||||||
|
Interest
on long-term debt (1)
|
200.3
|
38.2
|
75.6
|
73.9
|
12.6
|
|||||||||||
|
Operating
leases
|
1.9
|
0.7
|
1.1
|
0.1
|
--
|
|||||||||||
|
Total
contractual cash obligations
|
$
|
700.8
|
$
|
42.6
|
$
|
84.2
|
$
|
88.6
|
$
|
485.4
|
||||||
| (1) |
Represents
the estimated interest obligations on the outstanding balances
of the
Revolving Credit Facility, Tranche B Term Loan Facility and
Senior Notes,
together, assuming scheduled principal payments (based on the
terms of the
loan agreements) were made and assuming a weighted average
interest rate
of 7.76%. Estimated interest obligations would be different
under
different assumptions regarding interest rates or timing of
principal
payments. If interest rates on borrowings with variable rates
increased by
1%, interest expense would increase approximately $3.7 million,
in the
first year. However, given the protection afforded by the interest
rate
cap agreements, the impact of a one percentage point increase
would be
limited to $2.3 million.
|
Off-Balance
Sheet Arrangements
We
do not
have any off-balance sheet arrangements or financing activities with
special-purpose entities.
Inflation
Inflationary
factors such as increases in the costs of raw materials, packaging materials,
purchased product and overhead may adversely affect our operating results.
Although we do not believe that inflation has had a material impact on
our
financial condition or results from operations for the periods referred
to
above, a high rate of inflation in the future could have a material adverse
effect on our business, financial condition or results from operations.
The
recent increase in crude oil prices has had an adverse impact on transportation
costs, as well as, certain petroleum based raw materials and packaging
material.
Although the Company takes efforts to minimize the impact of inflationary
factors, including raising prices to our customers, a high rate of pricing
volatility associated with crude oil supplies may continue to have an
adverse
effect on our operating results.
-43-
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K contains “forward looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995 (the
“PSLR
Act”), including, without limitation, information within Management’s Discussion
and Analysis of Financial Condition and Results of Operations. The following
cautionary statements are being made pursuant to the provisions of the
PSLR Act
and with the intention of obtaining the benefits of the “safe harbor” provisions
of the PSLR Act. Although we believe that our expectations are based
on
reasonable assumptions, actual results may differ materially from those
in the
forward-looking statement.
Forward-looking
statements speak only as of the date of this Annual Report on Form 10-K.
Except as required under federal securities laws and the rules and regulations
of the SEC, we do not have any intention to update any forward-looking
statements to reflect events or circumstances arising after the date
of this
Annual Report on Form 10-K, whether as a result of new information, future
events or otherwise. As a result of these risks and uncertainties, readers
are
cautioned not to place undue reliance on forward-looking statements included
in
this Annual Report on Form 10-K or that may be made elsewhere from time
to time
by, or on behalf of, us. All forward-looking statements attributable
to us are
expressly qualified by these cautionary statements.
These
forward-looking statements generally can be identified by the use of
words or
phrases such as “believe,” “anticipate,” “expect,” “estimate,” “project,” “will
be,” “will continue,” “will likely result,” or other similar words and phrases.
Forward-looking statements and our plans and expectations are subject
to a
number of risks and uncertainties that could cause actual results to
differ
materially from those anticipated, and our business in general is subject
to
such risks. For more information, see “Risk Factors” contained in Item 1A of
this Annual Report on Form 10-K. In addition, our expectations or beliefs
concerning future events involve risks and uncertainties, including,
without
limitation:
| · |
general
economic conditions affecting our products and their respective
markets,
|
| · |
the
high level of competition in our industry and
markets,
|
| · |
our
dependence on a limited number of customers for a large portion
of our
sales,
|
| · |
disruptions
in our distribution center,
|
| · |
acquisitions
or other strategic transactions diverting managerial resources,
or
incurrence of additional liabilities or integration problems
associated
with such transactions,
|
| · |
changing
consumer trends or pricing pressures which may cause us to
lower our
prices,
|
| · |
increases
in supplier prices,
|
| · |
changes
in our senior management team,
|
| · |
our
ability to protect our intellectual property
rights,
|
| · |
our
dependency on the reputation of our brand
names,
|
| · |
shortages
of supply of sourced goods or interruptions in the manufacturing
of our
products,
|
| · |
our
level of debt, and ability to service our
debt,
|
| · |
our
ability to obtain additional financing,
and
|
| · |
the
restrictions imposed by our senior credit facility and the
indenture on
our operations.
|
-44-
ITEM
7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We
are
exposed to changes in interest rates because our senior credit facility
is
variable rate debt. Interest rate changes, therefore, generally do not
affect
the market value of such debt, but do impact the amount of our interest
payments
and, therefore, our future earnings and cash flows, assuming other factors
are
held constant. At March 31, 2006, we had variable rate debt of
approximately $365.6 million related to our Tranche B term loan and $7.0
million
outstanding on our Revolving Credit Facility.
In
an
effort to protect the Company from the adverse impact that rising interest
rates
would have on our variable rate debt, we have entered into various interest
rate
cap agreements to hedge this exposure. On June 30, 2004, we paid $52,000
for a 5% interest rate cap agreement with a notional amount of $20.0
million.
The interest rate cap terminates in June 2006. On March 7, 2005 we
paid $2.3 million for interest rate cap agreements that became effective
August 30, 2005, with a total notional amount of $180.0 million and LIBOR
cap rates ranging from 3.25% to 3.75%. The interest rate cap agreements
terminate on May 30, 2006, 2007 and 2008 as to $50.0 million, $80.0 million
and $50.0 million, respectively. The fair value of the interest rate
cap
agreements was $3.3 million at March 31, 2006.
Holding
other variables constant, including levels of indebtedness, a one percentage
point increase in interest rates on our variable debt would have an adverse
impact on pre-tax earnings and cash flows for fiscal 2007 of approximately
$3.7 million. However, given the protection afforded by the interest rate
cap agreements, the impact of a one percentage point increase would be
limited
to $2.3 million.
ITEM
8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
The
financial statements and supplementary data required by this Item are
described
in Part IV, Item 15 of this Annual Report on Form 10-K and are presented
beginning on page F-1.
ITEM
9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not
Applicable.
Disclosure
Controls and Procedures
Changes
in Internal Control over Financial Reporting
There
have been no changes during the quarter ended March 31, 2006 in the Company’s
internal control over financial reporting (as defined in Exchange Act
Rule
13a-15(f)) that have materially affected, or are reasonably likely to
materially
affect, the Company's internal control over financial reporting.
Management’s
Annual Report on Internal Control over Financial Reporting
Management
of the Company is responsible for establishing and maintaining adequate
internal
control over financial reporting as defined in Rule 13a-15(f) of the
Exchange
Act. Internal control over financial reporting is a process designed
to provide
reasonable assurance as to the reliability of financial reporting and
the
preparation of financial statements for external purposes, in accordance
with
generally accepted accounting principles.
-45-
Management
has assessed the effectiveness of the Company’s internal control over financial
reporting as of March 31, 2006. In making its assessment, management
has used
the criteria established by the Committee of Sponsoring Organizations
(“COSO”)
of the Treadway Commission in Internal
Control - Integrated Framework.
Based
on
our assessment and those criteria, management has concluded that the
Company’s
internal control over financial reporting was effective as of March 31,
2006.
Management’s
assessment of the effectiveness of the Company’s internal control over financial
reporting, as of March 31, 2006, has been audited by PricewaterhouseCoopers
LLP,
the Company’s independent registered public accounting firm, who also audited
the Company’s consolidated financial statements, as stated in their report
included in Part IV, Item 15, of this Annual Report on Form 10-K.
ITEM
9B. OTHER
INFORMATION
None.
Part
III
Information
required to be disclosed by this Item is contained in the Company’s 2006 Proxy
Materials, which is incorporated herein by reference.
Information
required to be disclosed by this Item is contained in the Company’s 2006 Proxy
Materials, which is incorporated herein by reference.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
Information
required to be disclosed by this Item is contained in the Company’s 2006 Proxy
Materials, which is incorporated herein by reference.
Information
required to be disclosed by this Item is contained in the Company’s 2006 Proxy
Materials, which is incorporated herein by reference.
Information
required to be disclosed by this Item is contained in the Company’s 2006 Proxy
Materials, which is incorporated herein by reference.
-46-
Part
IV
(a)
(1) Financial
Statements
|
Prestige
Brands Holdings, Inc.
|
|
Reports
of Independent Registered Public Accounting Firm (PricewaterhouseCoopers
LLP)
|
|
Consolidated
Statements of Operations for the years ended March 31, 2006 and 2005,
and for the periods from February 6, 2004 to March 31, 2004
(successor basis) and from April 1, 2003 to February 5, 2004
(predecessor basis)
|
|
Consolidated
Balance Sheets as of March 31, 2006 and 2005
|
|
Consolidated
Statements of Members’ and Stockholders’ Equity and Comprehensive Income
for the years ended March 31, 2006 and 2005, and for the periods from
February 6, 2004 to March 31, 2004 (successor basis) and from
April 1, 2003 to February 5, 2004 (predecessor
basis)
|
|
Consolidated
Statements of Cash Flows for the years ended March 31, 2006 and 2005,
and for the periods from February 6, 2004 to March 31, 2004
(successor basis) and from April 1, 2003 to February 5, 2004
(predecessor basis)
|
|
Notes
to Consolidated Financial Statements
|
|
Schedule II—Valuation
and Qualifying Accounts
|
|
|
|
Prestige
Brands International, LLC
|
|
Reports
of Independent Registered Public Accounting Firm (PricewaterhouseCoopers
LLP)
|
|
Consolidated
Statements of Operations for the years ended March 31, 2006 and 2005,
and for the periods from February 6, 2004 to March 31, 2004
(successor basis) and from April 1, 2003 to February 5, 2004
(predecessor basis)
|
|
Consolidated
Balance Sheets as of March 31, 2006 and 2005
|
|
Consolidated
Statements of Members’ Equity and Comprehensive Income for the years ended
March 31, 2006 and 2005, and for the periods from February 6,
2004 to March 31, 2004 (successor basis) and from April 1, 2003
to February 5, 2004 (predecessor basis)
|
|
Consolidated
Statements of Cash Flows for the years ended March 31, 2006 and 2005,
and for the periods from February 6, 2004 to March 31, 2004
(successor basis) and from April 1, 2003 to February 5, 2004
(predecessor basis)
|
|
Notes
to Consolidated Financial Statements
|
|
Schedule II—Valuation
and Qualifying Accounts
|
(a)
(2) Financial
Statement Schedules
Schedule II
- Valuation and Qualifying Accounts listed in (a)(1) above is included
herein. Schedules other than those listed in the preceding sentence have
been
omitted as they are either not required, not applicable, or the information
has
otherwise been shown in the consolidated financial statements or notes
thereto.
-47-
(b) Exhibits
SCHEDULE
II
SCHEDULE
II
The
exhibits listed below are filed as part of, or incorporated by reference
into,
this Annual Report on Form 10-K. See Exhibit Index immediately following
the signature pages to this Annual Report on Form 10-K.
| EXHIBIT NO. | DESCRIPTION | |
|
1.1
|
Form
of Underwriting Agreement (filed as Exhibit 1.1 to Prestige
Brands
Holdings, Inc.’s Form S-1/A filed on February 8,
2005).+
|
|
|
2.1
|
Asset
Sale and Purchase Agreement, dated July 22, 2005, by and among
Reckitt Benckiser Inc., Reckitt Benckiser (Canada) Inc., Prestige
Brands
Holdings, Inc. and The Spic and Span Company (filed as Exhibit 2.1 to
Prestige Brands Holdings, Inc.’s Form 8-K filed on July 28,
2005).+
|
|
|
2.2
|
Unit
Purchase Agreement, dated as of November 9, 2005, by and between
Prestige
Brands Holdings, Inc., and each of Dental Concepts, LLC, Richard
Gaccione, Combined Consultants DBPT Gordon Wade, Douglas A.P.
Hamilton,
Islandia L.P., George O’Neill, Abby O’Neill, Michael Porter, Marc Cole and
Michael Lesser (filed as Exhibit 10.1 to Prestige Brands Holdings,
Inc.’s
Form 10-Q filed on February 14, 2006).+
|
|
|
3.1
|
|
Amended
and Restated Certificate of Incorporation of Prestige Brands
Holdings, Inc. (filed
as Exhibit 3.1 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
February 8, 2005).+
|
|
3.2
|
|
Amended
and Restated Bylaws of Prestige Brands Holdings, Inc. (filed
as Exhibit 3.2 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
February 8, 2005).+
|
|
3.3
|
|
Certificate
of Formation of Prestige Brands International, LLC (filed
as Exhibit 3.3 to Prestige Brands, Inc.’s Form S-4 filed on July 6,
2004).+
|
|
3.4
|
|
Limited
Liability Company Agreement of Prestige Brands International, LLC
(filed
as Exhibit 3.4 to Prestige Brands, Inc.’s Form S-4 filed on July 6,
2004).+
|
|
4.1
|
|
Form of
stock certificate for common stock (filed
as Exhibit 4.1 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
January 26, 2005).+
|
|
4.2
|
|
Indenture,
dated April 6, 2004, among Prestige Brands, Inc., each Guarantor
thereto and U.S. Bank National Association, as Trustee (filed
as Exhibit 4.1 to Prestige Brands, Inc.’s Form S-4 filed on July 6,
2004).+
|
|
4.3
|
Form
of 9¼% Senior Subordinated Note due 2012 (contained in Exhibit 4.2
to this
Annual Report on Form 10-K).+
|
|
|
10.1
|
|
Credit
Agreement, dated April 6, 2004, among Prestige Brands, Inc.,
Prestige Brands International, LLC, the Lenders thereto, the
Issuers
thereto, Citicorp North America, Inc. as Administrative Agent and as
Tranche C Agent, Bank of America, N.A. as Syndication Agent, and
Merrill Lynch Capital, a division of Merrill Lynch Business
Financial
Services Inc., as Documentation Agent (filed
as Exhibit 10.1 to Prestige Brands Holdings, Inc.’s Form S-1 filed on July
28, 2004).+
|
|
10.2
|
|
Form of
Amendment No. 1 to the Credit Agreement, dated as of April 6,
2004, among Prestige Brands, Inc., Prestige Brands International,
LLC, the Lenders thereto, the Issuers thereto, Citicorp North
America, Inc., as administrative agent, Bank of America, N.A., as
syndication agent, and Merrill Lynch Capital, a division of
Merrill Lynch
Business Financial Services, Inc., as documentation agent
(filed
as Exhibit 10.1.1 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
February 8, 2005).+
|
|
10.3
|
|
Pledge
and Security Agreement, dated April 6, 2004, by Prestige
Brands, Inc. and each of the Grantors party thereto, in favor of
Citicorp North America, Inc. as Administrative Agent and
Tranche C Agent (filed
as Exhibit 10.2 to Prestige Brands Holdings, Inc.’s Form S-1 filed on July
28, 2004).+
|
|
10.4
|
|
Intercreditor
Agreement, dated April 6, 2004, between Citicorp North
America, Inc. as Administrative Agent and as Tranche C Agent,
Prestige Brands, Inc., Prestige Brands International, LLC and each of
the Subsidiary Guarantors thereto (filed
as Exhibit 10.3 to Prestige Brands Holdings, Inc.’s Form S-1 filed on July
28, 2004).+
|
| 10.5 | Purchase Agreement, dated March 30, 2004, among Prestige Brands, Inc. each Guarantor thereto and |
-48-
|
Citigroup
Global Markets Inc. as Representative
of the Initial Purchasers (filed
as Exhibit 10.5 to Prestige Brands Holdings, Inc.’s Form S-1 filed on July
28, 2004).+
|
||
|
10.6
|
Registration
Rights Agreement, dated April 6, 2004, among Prestige
Brands, Inc., each Guarantor thereto, Citigroup Global
Markets Inc. as Representative of the Initial Purchasers (filed
as Exhibit 10.6 to Prestige Brands Holdings, Inc.’s Form S-1 filed on July
28, 2004).+
|
|
|
10.7
|
Unit
Purchase Agreement, dated February 6, 2004, by and among
Medtech/Denorex, LLC, GTCR Fund VIII, L.P., GTCR Fund VIII/B,
L.P., GTCR Co-Invest II, L.P. and the TCW/Crescent Purchasers thereto
(filed
as Exhibit 10.8 to Prestige Brands Holdings, Inc.’s Form S-1 filed on July
28, 2004).+
|
|
|
10.8
|
First
Amendment, Acknowledgment and Supplement to Unit Purchase
Agreement, dated
April 6, 2004, to the Unit Purchase Agreement, dated February 6,
2004, by and among Medtech/Denorex, LLC, GTCR Fund VIII, L.P., GTCR
Fund VIII/B, L.P., GTCR Co-Invest II, L.P. and the TCW/Crescent
Purchasers thereto (filed
as Exhibit 10.9 to Prestige Brands Holdings, Inc.’s Form S-1 filed on July
28, 2004).+
|
|
|
10.9
|
Second
Amendment, Acknowledgement and Supplement to Unit Purchase
Agreement,
dated April 6, 2004, to the Unit Purchase Agreement, dated
February 6, 2004, by and among Medtech/Denorex, LLC, GTCR
Fund VIII, L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II,
L.P. and the TCW/Crescent Purchasers thereto as amended
by the First
Amendment, Acknowledgement and Supplement to Unit Purchase
Agreement,
dated April 6, 2004 (filed
as Exhibit 10.10 to Prestige Brands Holdings, Inc.’s Form S-1 filed on
July 28, 2004).+
|
|
|
10.10
|
Securityholders
Agreement, dated February 6, 2004, among Medtech/Denorex, LLC, GTCR
Fund VIII, L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II,
L.P., GTCR Capital Partners, L.P., the TCW/Crescent Purchasers
and the
TCW/Crescent Lenders thereto, each Executive thereto and
each of the Other
Securityholders thereto (filed
as Exhibit 10.11 to Prestige Brands Holdings, Inc.’s Form S-1 filed on
July 28, 2004).+
|
|
|
10.11
|
First
Amendment and Acknowledgement to Securityholders Agreement,
dated
April 6, 2004, to the Securityholders Agreement, dated
February 6, 2004, among Medtech/Denorex, LLC, GTCR Fund VIII,
L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II, L.P., GTCR
Capital Partners, L.P., the TCW/Crescent Purchasers and
the TCW/Crescent
Lenders thereto, each Executive thereto and each of the
Other
Securityholders thereto (filed
as Exhibit 10.12 to Prestige Brands Holdings, Inc.’s Form S-1 filed on
July 28, 2004).+
|
|
|
10.12
|
Registration
Rights Agreement, dated February 6, 2004, among Medtech/Denorex, LLC,
GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P., GTCR
Co-Invest II, L.P., GTCR Capital Partners, L.P., the TCW/Crescent
Purchasers and the TCW/Crescent Lenders thereto, each Executive
thereto
and each of the Other Securityholders thereto (filed
as Exhibit 10.13 to Prestige Brands Holdings, Inc.’s Form S-1 filed on
July 28, 2004).+
|
|
|
10.13
|
First
Amendment and Acknowledgement to Registration Rights Agreement,
dated
April 6, 2004, to the Registration Rights Agreement, dated
February 6, 2004, among Medtech/Denorex, LLC, GTCR Fund VIII,
L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II, L.P., GTCR
Capital Partners, L.P., the TCW/Crescent Purchasers and
the TCW/Crescent
Lenders thereto, each Executive thereto and each of the
Other
Securityholders thereto (filed
as Exhibit 10.14 to Prestige Brands Holdings, Inc.’s Form S-1 filed on
July 28, 2004).+
|
|
|
10.14
|
Senior
Preferred Investor Rights Agreement, dated March 5, 2004, among
Medtech/Denorex, LLC, GTCR Fund VIII, L.P., TSG3 L.P., J. Gary
Shansby, Charles H. Esserman, Michael L. Mauze, James L.
O’Hara and each Subsequent Securityholder thereto (filed
as Exhibit 10.15 to Prestige Brands Holdings, Inc.’s Form S-1 filed on
July 28, 2004).+
|
|
|
10.15
|
Amended
and Restated Professional Services Agreement, dated April 6, 2004, by
and between GTCR Golder Rauner II, L.L.C. and Prestige
Brands, Inc. (filed
as Exhibit 10.16 to Prestige Brands Holdings, Inc.’s Form S-1 filed on
July 28, 2004).+
|
|
|
10.16
|
Omnibus
Consent and Amendment to Securityholders Agreement, Registration
Rights
Agreement, Senior Management Agreements and Unit Purchase
Agreement, dated
as of July 6, 2004 (filed
as Exhibit 10.29.1 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
November 12, 2004).+
|
|
|
10.17
|
Form of
Amended and Restated Senior Management Agreement, dated
as of January 28,
2005, by and among Prestige International Holdings, LLC, Prestige
Brands Holdings, Inc., Prestige Brands, Inc., and Peter J.
Anderson (filed
as Exhibit 10.29.7 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
January 26, 2005).+@
|
-49-
|
10.18
|
Form of
Amended and Restated Senior Management Agreement, dated
as of January 28,
2005, by and among Prestige International Holdings, LLC, Prestige
Brands Holdings, Inc., Prestige Brands, Inc., and Gerald F.
Butler (filed
as Exhibit 10.29.8 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
January 26, 2005).+@
|
|
|
10.19
|
Form of
Amended and Restated Senior Management Agreement, dated
as of January 28,
2005, by and among Prestige International Holdings, LLC, Prestige
Brands Holdings, Inc., Prestige Brands, Inc., and Michael A.
Fink (filed
as Exhibit 10.29.9 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
January 26, 2005).+@
|
|
|
10.20
|
Form of
Amended and Restated Senior Management Agreement, dated
as of January 28,
2005, by and among Prestige International Holdings, LLC,
Prestige Brands
Holdings, Inc., Prestige Brands, Inc., and Charles Shrank
(filed
as Exhibit 10.29.10 to Prestige Brands Holdings, Inc.’s Form S-1/A filed
on January 26, 2005).+@
|
|
|
10.21
|
Form of
Amended and Restated Senior Management Agreement, dated
as of January 28,
2005, by and among Prestige International Holdings, LLC,
Prestige Brands
Holdings, Inc., Prestige Brands, Inc., and Eric M. Millar
(filed
as Exhibit 10.29.11 to Prestige Brands Holdings, Inc.’s Form S-1/A filed
on January 26, 2005).+@
|
|
|
10.22
|
Distribution
Agreement, dated April 24, 2003, by and between Medtech
Holdings, Inc. and OraSure Technologies, Inc. (filed
as Exhibit 10.27 to Prestige Brands, Inc.’s Form S-4/A filed on August 4,
2004).+**
|
|
|
10.23
|
License
Agreement, dated June 2, 2003, between Zengen, Inc. and Prestige
Brands International, Inc. (filed
as Exhibit 10.28 to Prestige Brands, Inc.’s Form S-4/A filed on August 4,
2004).+**
|
|
|
10.24
|
Patent
and Technology License Agreement, dated October 2, 2001, between The
Procter & Gamble Company and Prestige Brands
International, Inc. (filed
as Exhibit 10.29 to Prestige Brands, Inc.’s Form S-4/A filed on August 19,
2004).+**
|
|
|
10.25
|
Amendment,
dated April 30, 2003, to the Patent and Technology License Agreement,
dated October 2, 2001, between The Procter & Gamble Company
and Prestige Brands International, Inc. (filed
as Exhibit 10.30 to Prestige Brands, Inc.’s Form S-4/A filed on August 19,
2004).+
|
|
|
10.26
|
Contract
Manufacturing Agreement, dated February 1, 2001, among The
Procter & Gamble Manufacturing Company, P&G International
Operations SA, Prestige Brands International, Inc. and Prestige
Brands International (Canada) Corp. (filed
as Exhibit 10.31 to Prestige Brands, Inc.’s Form S-4/A filed on August 4,
2004).+**
|
|
|
10.27
|
Manufacturing
Agreement, dated December 30, 2002, by and between Prestige Brands
International, Inc. and Abbott Laboratories (filed
as Exhibit 10.32 to Prestige Brands, Inc.’s Form S-4/A filed on August 4,
2004).+**
|
|
|
10.28
|
Amendment
No. 4 and Restatement of Contract Manufacturing Agreement,
dated
May 1, 2002, by and between The Procter & Gamble Company and
Prestige Brands International, Inc. (filed
as Exhibit 10.33 to Prestige Brands, Inc.’s Form S-4/A filed on August 4,
2004).+**
|
|
|
10.29
|
Letter
Agreement, dated April 15, 2004, between Prestige Brands, Inc.
and Carrafiello Diehl & Associates, Inc. (filed
as Exhibit 10.34 to Prestige Brands, Inc.’s Form S-4/A filed on August 4,
2004).+**
|
|
|
10.30
|
Prestige
Brands Holdings, Inc. 2005 Long-Term Equity Incentive Plan
(filed
as Exhibit 10.38 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
January 26, 2005).+#
|
|
|
10.31
|
Form
of Restricted Stock Grant Agreement (filed
as Exhibit 10.1 to Prestige Brands Holdings, Inc.’s Form 10-Q filed on
August 9, 2005).+#
|
|
|
10.32
|
Form of
Exchange Agreement by and among Prestige Brands Holdings, Inc.,
Prestige International Holdings, LLC and the common unit holders
listed on the signature pages thereto (filed
as Exhibit 10.39 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
January 26, 2005).+
|
|
|
10.33
|
Storage
and Handling Agreement dated April 13, 2005 by and between
Warehousing Specialists, Inc. and Prestige Brands, Inc. (filed
as Exhibit 10.1 to Prestige Brands Holdings, Inc.’s Form 8-K filed on
April 15, 2005).+
|
|
10.34
|
Transportation
Management Agreement dated April 13, 2005 by and between Prestige
Brands, Inc. and Nationwide Logistics, Inc. (filed as Exhibit 10.2 to
Prestige Brands Holdings, Inc.’s Form 8-K filed on April 15,
2005).+
|
-50-
|
10.35
|
Executive
Employment Agreement, dated as of January 17, 2006, between
Prestige
Brands Holdings, Inc. and Charles N. Jolly.*@
|
|
|
10.36
|
Executive
Employment Agreement, dated as of August 4, 2005, by
and among Prestige
Brands Holdings, Inc., Prestige Brands, Inc. and Frank
P. Palantoni (filed
as Exhibit 99.2 to Prestige Brands Holdings, Inc.’s Form 8-K filed on
August 9, 2005).+@
|
|
|
10.37
|
Trademark
License and Option to Purchase Agreement, dated September
8, 2005, by and
among The Procter & Gamble Company and Prestige Brands Holdings, Inc.
(filed as Exhibit 10.1 to Prestige Brands Holdings, Inc.’s Form 8-K filed
on September 12, 2005).+
|
|
|
10.38
|
Senior
Management Agreement, dated as of March 21, 2006, between
Prestige Brands
Holdings, Inc., Prestige Brands, Inc. and Peter C. Mann
(filed
as Exhibit 99.1 to Prestige Brands Holdings, Inc.’s Form 8-K filed on
March 23, 2006).+@
|
|
|
21.1
|
Subsidiaries
of the Registrant.*
|
|
|
23.1
|
Consent
of PricewaterhouseCoopers LLP.*
|
|
|
31.1
|
Certification
of Principal Executive Officer of Prestige Brands Holdings,
Inc. pursuant
to Rule 13a-14(a) of the Securities Exchange Act of 1934,
as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
|
|
|
31.2
|
Certification
of Principal Financial Officer of Prestige Brands Holdings,
Inc. pursuant
to Rule 13a-14(a) of the Securities Exchange Act of 1934,
as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
|
|
|
31.3
|
Certification
of Principal Executive Officer of Prestige
Brands International, LLC
pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of
2002.*
|
|
|
31.4
|
Certification
of Principal Financial Officer of Prestige
Brands International, LLC
pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of
2002.*
|
|
|
32.1
|
Certification
of Principal Executive Officer of Prestige Brands Holdings,
Inc. pursuant
to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title
18 of the United
States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act
of 2002.*
|
|
|
32.2
|
Certification
of Principal Financial Officer of Prestige Brands Holdings,
Inc. pursuant
to Rule 13a-14(b) and Section 1350 of Chapter 63 of Title
18 of the United
States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act
of 2002.*
|
|
|
32.3
|
Certification
of Principal Executive Officer of Prestige Brands International,
LLC
pursuant to Rule 13a-14(b) and Section 1350 of Chapter
63 of Title 18 of
the United States Code, as adopted pursuant to Section
906 of the
Sarbanes-Oxley Act of 2002.*
|
|
|
32.4
|
Certification
of Principal Financial Officer of Prestige Brands International,
LLC
pursuant to Rule 13a-14(b) and Section 1350 of Chapter
63 of Title 18 of
the United States Code, as adopted pursuant to Section
906 of the
Sarbanes-Oxley Act of
2002.*
|
*
Filed
herewith.
**
Certain confidential portions have been omitted pursuant to a
confidential treatment request separately filed with the Securities and
Exchange
Commission.
+
Incorporated
herein by reference.
@
Represents
a management contract.
#
Represents
a compensatory plan.
-51-
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Prestige
Brands Holdings, Inc.
|
||
|
Reports
of Independent Registered Public Accounting Firm (PricewaterhouseCoopers
LLP)
|
F-3
|
|
|
Consolidated
Statements of Operations for the years ended March 31, 2006 and 2005,
and for the periods from February 6, 2004 to March 31, 2004
(successor basis) and from April 1, 2003 to February 5, 2004
(predecessor basis)
|
F-6
|
|
|
Consolidated
Balance Sheets as of March 31, 2006 and 2005
|
F-7
|
|
|
Consolidated
Statements of Members’ and Stockholders’ Equity and Comprehensive Income
for the years ended March 31, 2006 and 2005, and for the periods from
February 6, 2004 to March 31, 2004 (successor basis) and from
April 1, 2003 to February 5, 2004 (predecessor
basis)
|
F-8
|
|
|
Consolidated
Statements of Cash Flows for the years ended March 31, 2006 and 2005,
and for the periods from February 6, 2004 to March 31, 2004
(successor basis) and from April 1, 2003 to February 5, 2004
(predecessor basis)
|
F-13
|
|
|
Notes
to Consolidated Financial Statements
|
F-15
|
|
|
Schedule II—Valuation
and Qualifying Accounts
|
F-41
|
|
|
Prestige
Brands International, LLC
|
||
|
Reports
of Independent Registered Public Accounting Firm (PricewaterhouseCoopers
LLP)
|
F-44
|
|
|
Consolidated
Statements of Operations for the years ended March 31, 2006 and 2005,
and for the periods from February 6, 2004 to March 31, 2004
(successor basis) and from April 1, 2003 to February 5, 2004
(predecessor basis)
|
F-47
|
|
|
Consolidated
Balance Sheets as of March 31, 2006 and 2005
|
F-48
|
|
|
Consolidated
Statements of Members’ Equity and Comprehensive Income for the years ended
March 31, 2006 and 2005, and for the periods from February 6,
2004 to March 31, 2004 (successor basis) and from April 1, 2003
to February 5, 2004 (predecessor basis)
|
F-49
|
|
|
Consolidated
Statements of Cash Flows for the years ended March 31, 2006 and 2005,
and for the periods from February 6, 2004 to March 31, 2004
(successor basis) and from April 1, 2003 to February 5, 2004
(predecessor basis)
|
F-52
|
|
|
Notes
to Consolidated Financial Statements
|
F-54
|
|
|
Schedule II—Valuation
and Qualifying Accounts
|
F-78
|
F-1
Prestige
Brands Holdings, Inc.
Financial
Statements
March
31, 2006
F-2
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors and Stockholders
Prestige
Brands Holdings, Inc.:
We
have
completed an integrated audit of Prestige Brands Holdings, Inc.’s 2006
consolidated financial statements and of its internal control over
financial
reporting as of March 31, 2006 and audits of its 2005 and 2004 consolidated
financial statements in accordance with the standards of the Public
Company
Accounting Oversight Board (United States). Our opinions, based on
our audits,
are presented below.
Consolidated
financial statements and financial statement schedule
In
our
opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of members’ and stockholders’ equity and
comprehensive income and of cash flows present fairly, in all material
respects,
the financial position of Prestige Brands Holdings, Inc. and its subsidiaries
at
March 31, 2006 and 2005 (successor basis), and the results of their
operations
and their cash flows for each of the two years in the period ended
March 31,
2006 and for the period from February 6, 2004 to March 31, 2004 (successor
basis) in conformity with accounting principles generally accepted
in the United
States of America. In addition, in our opinion, the financial statement
schedule
listed in the index appearing under Item 15(a)(2) presents
fairly, in all material respects, the information set forth therein
when read in
conjunction with the related consolidated financial statements. These
financial
statements and financial statement schedule are the responsibility
of the
Company’s management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our
audits. We
conducted our audits of these statements in accordance with the standards
of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance
about
whether the financial statements are free of material misstatement.
An audit of
financial statements includes examining, on a test basis, evidence
supporting
the amounts and disclosures in the financial statements, assessing
the
accounting principles used and significant estimates made by management,
and
evaluating the overall financial statement presentation. We believe
that our
audits provide a reasonable basis for our opinion.
Internal
control over financial reporting
Also,
in
our opinion, management’s assessment, included in Management’s Annual Report on
Internal Control over Financial Reporting appearing under Item 9A,
that the
Company maintained effective internal control over financial reporting
as of
March 31, 2006 based on criteria established in Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations (“COSO”) of the Treadway
Commission, is fairly stated, in all material respects, based on those
criteria.
Furthermore, in our opinion, the Company maintained, in all material
respects,
effective internal control over financial reporting as of March 31,
2006, based
on criteria established in Internal
Control - Integrated Framework
issued
by COSO. The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of
the
effectiveness of internal control over financial reporting. Our responsibility
is to express opinions on management’s assessment and on the effectiveness
of the Company’s internal control over financial reporting based on our audit.
We conducted our audit of internal control over financial reporting
in
accordance with the standards of the Public Company Accounting Oversight
Board
(United States). Those standards require that we plan and perform the
audit to
obtain reasonable assurance about whether effective internal control
over
financial reporting was maintained in all material respects. An audit
of
internal control over financial reporting includes obtaining an understanding
of
internal control over financial reporting, evaluating management’s assessment,
testing and evaluating the design and operating effectiveness of internal
control, and performing such other procedures as we consider necessary
in the
circumstances. We believe that our audit provides a reasonable basis
for our
opinions.
F-3
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial
reporting
and the preparation of financial statements for external purposes in
accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately
and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with
generally accepted accounting principles, and that receipts and expenditures
of
the company are being made only in accordance with authorizations of
management
and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition,
use or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting
may not
prevent or detect misstatements. Also, projections of any evaluation
of
effectiveness to future periods are subject to the risk that controls
may become
inadequate because of changes in conditions, or that the degree of
compliance
with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
Salt
Lake
City, Utah
June
10,
2006
F-4
Report
of
Independent Registered Public Accounting Firm
To
the
Board of Directors and Stockholders
Medtech
Holdings, Inc. and The Denorex Company
In
our
opinion, the accompanying combined statements of operations, of stockholders'
equity, and of cash flows present fairly, in all material respects,
the results
of operations and cash flows of Medtech Holdings, Inc. and The Denorex
Company (the "Company") for the period from April 1, 2003 to
February 5, 2004 (predecessor basis) in conformity with accounting
principles generally accepted in the United States of America. In addition,
in
our opinion, the financial statement schedule listed in the index appearing
on
page F-1 presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an
opinion on these financial statements and financial statement schedule
based on
our audits. We conducted our audits of these statements in accordance
with the
standards of the Public Company Accounting Oversight Board (United
States).
Those standards require that we plan and perform the audit to obtain
reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting
the amounts and disclosures in the financial statements, assessing
the
accounting principles used and significant estimates made by management,
and
evaluating the overall financial statement presentation. We believe
that our
audit provides a reasonable basis for our opinion.
/s/
PricewaterhouseCoopers LLP
Salt
Lake
City, Utah
June
10,
2006
F-5
Prestige
Brands Holdings, Inc.
Consolidated
Statements of Operations
|
Year
Ended March 31
|
February
6, 2004 to March 31,
|
April
1, 2003 to February 5,
|
|||||||||||
|
(In
thousands, except per share data)
|
2006
|
2005
|
2004
|
2004
|
|||||||||
|
(Successor
Basis)
|
(Successor
Basis)
|
(Predecessor
Basis)
|
|||||||||||
|
Revenues
|
|||||||||||||
|
Net
sales
|
$
|
296,239
|
$
|
288,918
|
$
|
16,822
|
$
|
68,069
|
|||||
|
Other
revenues
|
429
|
151
|
--
|
--
|
|||||||||
|
Other
revenues - related parties
|
--
|
--
|
54
|
333
|
|||||||||
|
Total
revenues
|
296,668
|
289,069
|
16,876
|
68,402
|
|||||||||
|
Cost
of Sales
|
|||||||||||||
|
Cost
of sales
|
139,430
|
139,009
|
9,351
|
26,855
|
|||||||||
|
Gross
profit
|
157,238
|
150,060
|
7,525
|
41,547
|
|||||||||
|
Operating
Expenses
|
|||||||||||||
|
Advertising
and promotion
|
32,082
|
29,697
|
1,267
|
10,061
|
|||||||||
|
General
and administrative
|
21,158
|
20,198
|
1,649
|
12,068
|
|||||||||
|
Depreciation
|
1,736
|
1,899
|
41
|
247
|
|||||||||
|
Amortization
of intangible assets
|
9,041
|
7,901
|
890
|
4,251
|
|||||||||
|
Forgiveness
of related party receivable
|
--
|
--
|
--
|
1,404
|
|||||||||
|
Impairment
of goodwill
|
1,892
|
--
|
--
|
--
|
|||||||||
|
Impairment
of intangible asset
|
7,425
|
--
|
--
|
--
|
|||||||||
|
Total
operating expenses
|
73,334
|
59,695
|
3,847
|
28,031
|
|||||||||
|
Operating
income
|
83,904
|
90,365
|
3,678
|
13,516
|
|||||||||
|
Other
income (expense)
|
|||||||||||||
|
Interest
income
|
568
|
371
|
10
|
38
|
|||||||||
|
Interest
expense
|
(36,914
|
)
|
(45,097
|
)
|
(1,735
|
)
|
(8,195
|
)
|
|||||
|
Loss
on disposal of equipment
|
--
|
(9
|
)
|
--
|
--
|
||||||||
|
Loss
on extinguishment of debt
|
--
|
(26,854
|
)
|
--
|
--
|
||||||||
|
Total
other income (expense)
|
(36,346
|
)
|
(71,589
|
)
|
(1,725
|
)
|
(8,157
|
)
|
|||||
|
Income
before income taxes
|
47,558
|
18,776
|
1,953
|
5,359
|
|||||||||
|
Provision
for income taxes
|
(21,281
|
)
|
(8,556
|
)
|
(724
|
)
|
(2,214
|
)
|
|||||
|
Net
income
|
26,277
|
10,220
|
1,229
|
3,145
|
|||||||||
|
Cumulative
preferred dividends on Senior Preferred and Class B Preferred
Units
|
--
|
(25,395
|
)
|
(1,390
|
)
|
--
|
|||||||
|
Net
income (loss) available to members and common stockholders
|
$
|
26,277
|
$
|
(15,175
|
)
|
$
|
(161
|
)
|
$
|
3,145
|
|||
|
Basic
earnings (loss) per share
|
$
|
0.54
|
$
|
(0.55
|
)
|
$
|
(0.01
|
)
|
|||||
|
Diluted
earnings (loss) per share
|
$
|
0.53
|
$
|
(0.55
|
)
|
$
|
(0.01
|
)
|
|||||
|
Weighted
average shares outstanding:
Basic
|
48,908
|
27,546
|
24,472
|
||||||||||
|
Diluted
|
50,008
|
27,546
|
24,472
|
||||||||||
See
accompanying notes.
F-6
Prestige
Brands Holdings, Inc.
Consolidated
Balance Sheets
(In
thousands)
|
Assets
|
March
31, 2006
|
March
31, 2005
|
|||||
|
Current
assets
|
(Successor
Basis)
|
||||||
|
Cash
and cash equivalents
|
$
|
8,200
|
$
|
5,334
|
|||
|
Accounts
receivable
|
40,042
|
35,918
|
|||||
|
Inventories
|
33,841
|
24,833
|
|||||
|
Deferred
income tax assets
|
3,227
|
5,699
|
|||||
|
Prepaid
expenses and other current assets
|
701
|
3,152
|
|||||
|
Total
current assets
|
86,011
|
74,936
|
|||||
|
Property
and equipment
|
1,653
|
2,324
|
|||||
|
Goodwill
|
297,935
|
294,731
|
|||||
|
Intangible
assets
|
637,197
|
608,613
|
|||||
|
Other
long-term assets
|
15,849
|
15,996
|
|||||
|
Total
Assets
|
$
|
1,038,645
|
$
|
996,600
|
|||
|
Liabilities
and Stockholders’ Equity
|
|||||||
|
Current
liabilities
|
|||||||
|
Accounts
payable
|
$
|
18,065
|
$
|
21,705
|
|||
|
Accrued
interest payable
|
7,563
|
7,060
|
|||||
|
Income
taxes payable
|
1,795
|
--
|
|||||
|
Other
accrued liabilities
|
4,582
|
4,529
|
|||||
|
Current
portion of long-term debt
|
3,730
|
3,730
|
|||||
|
Total
current liabilities
|
35,735
|
37,024
|
|||||
|
Long-term
debt
|
494,900
|
491,630
|
|||||
|
Deferred
income tax liabilities
|
98,603
|
85,899
|
|||||
|
Total
Liabilities
|
629,238
|
614,553
|
|||||
|
Commitments
and Contingencies - Note 15
|
|||||||
|
Stockholders’
Equity
|
|||||||
|
Preferred
stock - $0.01 par value
|
|||||||
|
Authorized
- 5,000 shares
|
|||||||
|
Issued
and outstanding - None
|
--
|
--
|
|||||
|
Common
stock - $0.01 par value
|
|||||||
|
Authorized
- 250,000 shares
|
|||||||
|
Issued
and outstanding - 50,038 shares and 49,998 shares at March
31, 2006 and
2005, respectively
|
501
|
500
|
|||||
|
Additional
paid-in capital
|
378,570
|
378,251
|
|||||
|
Treasury
stock, at cost - 18 shares and 2 shares at March 31, 2006
and 2005,
respectively
|
(30
|
)
|
(4
|
)
|
|||
|
Accumulated
other comprehensive income
|
1,109
|
320
|
|||||
|
Retained
earnings
|
29,257
|
2,980
|
|||||
|
Total
stockholders’ equity
|
409,407
|
382,047
|
|||||
|
Total
Liabilities and Stockholders’ Equity
|
$
|
1,038,645
|
$
|
996,600
|
|||
See
accompanying notes.
F-7
Prestige
Brands Holdings, Inc.
Consolidated
Statement of Changes in Members’
and
Stockholders’ Equity and Comprehensive Income
Years
Ended March 31, 2006
|
Medtech
Common
Stock
|
Denorex
Common
Stock
|
Senior
Preferred
Units
|
Class
B
Preferred
Units
|
||||||||||||||||||||||
|
(In
Thousands)
|
Shares
|
Amount
|
Shares
|
Amount
|
Units
|
Amount
|
Units
|
Amount
|
|||||||||||||||||
|
Predecessor
Basis
|
|||||||||||||||||||||||||
|
Balance
at March 31, 2003
|
7,145
|
$
|
71
|
125
|
$
|
1
|
--
|
$
|
--
|
--
|
$
|
--
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Amortization
of deferred compensation
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
Contribution
of capital
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
Components
of comprehensive income
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
Net
income
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Unrealized
gain on interest rate swap, net of income tax expense of
$148
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
Total
comprehensive income
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|
|||||||||||||||||
|
Balance
at February 5, 2004
|
7,145
|
71
|
125
|
1
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Successor
Basis
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Issuance
of Preferred and Common Units for cash
|
--
|
--
|
--
|
--
|
--
|
--
|
101
|
95,622
|
|||||||||||||||||
|
Issuance
of Preferred and Common Units in conjunction with Medtech
Acquisition
|
--
|
--
|
--
|
--
|
--
|
--
|
1
|
1,185
|
|||||||||||||||||
|
Ajustments
related to Medtech Acquisition
|
(7,145
|
)
|
(71
|
)
|
(125
|
)
|
(1
|
)
|
--
|
--
|
--
|
--
|
|||||||||||||
|
Issuance
of Preferred Units in conjunction with Spic and Span
Acquisition
|
--
|
--
|
--
|
--
|
23
|
17,768
|
--
|
--
|
|||||||||||||||||
|
Issuance
of warrants in connection with Medtech Acquisition debt
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
Issuance
of Preferred and Common Units upon exercise of warrants
|
--
|
--
|
--
|
--
|
--
|
--
|
5
|
--
|
|||||||||||||||||
|
Net
income and comprehensive income
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Balance
at March 31, 2004
|
--
|
$
|
--
|
--
|
$
|
--
|
23
|
$
|
17,768
|
107
|
$
|
96,807
|
|||||||||||||
See
accompanying notes.
F-8
Prestige
Brands Holdings, Inc.
Consolidated
Statement of Changes in Members’
and
Stockholders’ Equity and Comprehensive Income
Years
Ended March 31, 2006
(Continued)
|
Common
Units
|
Additional
Paid-in
Capital
|
Deferred
Compensation
|
Medtech
Treasury
Stock
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
Retained
Earnings
(Accumulated
Deficit)
|
Total
|
|||||||||||||||||||
|
Units
|
Amount
|
||||||||||||||||||||||||
|
(In
Thousands)
|
|||||||||||||||||||||||||
|
Balance
at March 31, 2003
|
--
|
$
|
--
|
$
|
56,792
|
$
|
(140
|
)
|
$
|
(2
|
)
|
$
|
(549
|
)
|
$
|
(12,314
|
)
|
$
|
43,859
|
||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Amortization
of deferred compensation
|
--
|
--
|
--
|
67
|
--
|
--
|
--
|
67
|
|||||||||||||||||
|
Contribution
of capital
|
--
|
--
|
2,629
|
--
|
--
|
--
|
--
|
2,629
|
|||||||||||||||||
|
Components
of comprehensive income
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Net
income
|
--
|
--
|
--
|
--
|
--
|
--
|
3,145
|
3,145
|
|||||||||||||||||
|
Unrealized
gain on interest rate swap, net of income tax expense of
$148
|
--
|
--
|
--
|
--
|
--
|
423
|
--
|
423
|
|||||||||||||||||
|
Total
comprehensive income
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
3,568
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Balance
at February 5, 2004
|
--
|
--
|
59,421
|
(73
|
)
|
(2
|
)
|
(126
|
)
|
(9,169
|
)
|
50,123
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Successor
Basis
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Issuance
of Preferred and Common Units for cash
|
50,000
|
4,749
|
--
|
--
|
--
|
--
|
--
|
100,371
|
|||||||||||||||||
|
Issuance
of Preferred and Common Units in conjunction with Medtech
Acquisition
|
5,282
|
524
|
--
|
--
|
--
|
--
|
--
|
1,709
|
|||||||||||||||||
|
Adjustments
related to Medtech Acquisition
|
--
|
--
|
(59,421
|
)
|
73
|
2
|
126
|
9,169
|
(50,123
|
)
|
|||||||||||||||
|
Issuance
of Preferred Units in conjunction with Spic and Span
Acquisition
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
17,768
|
|||||||||||||||||
|
Issuance
of warrants in connection with Medtech Acquisition Debt
|
--
|
--
|
4,871
|
--
|
--
|
--
|
--
|
4,871
|
|||||||||||||||||
|
Issuance
of Preferred and Common Units upon exercise of warrants
|
2,620
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
Net
income and comprehensive income
|
--
|
--
|
--
|
--
|
--
|
--
|
1,229
|
1,229
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Balance
at March 31, 2004
|
57,902
|
$
|
5,273
|
$
|
4,871
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
1,229
|
$
|
125,948
|
||||||||||
See
accompanying notes.
F-9
Prestige
Brands Holdings, Inc.
Consolidated
Statement of Changes in Members’
and
Stockholders’ Equity and Comprehensive Income
Years
Ended March 31, 2006
(Continued)
|
Senior
Preferred
Units
|
Class
B
Preferred
Units
|
Common
Units
|
Common
Stock
|
||||||||||||||||||||||
|
(In
Thousands)
|
Units
|
Amount
|
Units
|
Amount
|
Units
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||
|
Predecessor
Basis
|
|||||||||||||||||||||||||
|
Balance
at March 31, 2004
|
23
|
$
|
17,768
|
107
|
$
|
96,807
|
57,902
|
$
|
5,273
|
--
|
$
|
--
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Issuance
of Preferred and Common Units for cash
|
--
|
--
|
58
|
58,385
|
1,839
|
148
|
--
|
--
|
|||||||||||||||||
|
Issuance
of Preferred and Common Units in conjunction with the Bonita
Bay
Acquisition
|
--
|
--
|
--
|
91
|
19
|
1
|
--
|
--
|
|||||||||||||||||
|
Repurchase/cancellation
of Preferred and Common Units in conjunction with the Bonita
Bay
Acquisition
|
--
|
--
|
(2
|
)
|
--
|
(1,987
|
)
|
(46
|
)
|
--
|
--
|
||||||||||||||
|
Issuance
of restricted Common Units to management for cash
|
--
|
--
|
--
|
--
|
337
|
235
|
--
|
--
|
|||||||||||||||||
|
Exchange
of Common Units for Common Stock
|
--
|
--
|
--
|
--
|
(58,110
|
)
|
(5,611
|
)
|
26,666
|
267
|
|||||||||||||||
|
Issuance
of Common Stock in Initial Public Offering, net
|
--
|
--
|
--
|
--
|
--
|
--
|
28,000
|
280
|
|||||||||||||||||
|
Redemption
of Preferred Units
|
(23
|
)
|
(17,768
|
)
|
(163
|
)
|
(155,283
|
)
|
--
|
--
|
--
|
--
|
|||||||||||||
|
Retirement
of Common Stock
|
--
|
--
|
--
|
--
|
--
|
--
|
(4,666
|
)
|
(47
|
)
|
|||||||||||||||
|
Purchase
of Treasury Stock
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
Components
of comprehensive income
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Net
income
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
Unrealized
gain on interest rate caps, net of income tax expense of
$200
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
Total
comprehensive income
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
Balance
at March 31, 2005
|
--
|
$
|
-
|
--
|
$
|
--
|
--
|
$
|
--
|
50,000
|
$
|
500
|
|||||||||||||
See
accompanying notes.
F-10
Prestige
Brands Holdings, Inc.
Consolidated
Statement of Changes in Members’
and
Stockholders’ Equity and Comprehensive Income
Years
Ended March 31, 2006
(Continued)
|
Additional
Paid-in
Capital
|
Treasury
Stock
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
Retained
Earnings
(Accumulated
Deficit)
|
Total
|
|||||||||||||||
|
|
Shares
|
Amount
|
|||||||||||||||||
|
(In
Thousands)
|
|||||||||||||||||||
|
Balance
at March 31, 2004
|
$
|
4,871
|
--
|
$ --
|
|
$
|
--
|
$
|
1,229
|
$
|
125,948
|
||||||||
|
Issuance
of Preferred and Common Units for cash
|
--
|
--
|
--
|
|
--
|
--
|
58,533
|
||||||||||||
|
Issuance
of Preferred and Common Units in conjunction with the Bonita
Bay
Acquisition
|
--
|
--
|
--
|
|
--
|
--
|
92
|
||||||||||||
|
Repurchase/cancellation
of Preferred and Common Units in conjunction with the Bonita
Bay
Acquisition
|
--
|
--
|
--
|
|
--
|
--
|
(46
|
)
|
|||||||||||
|
Issuance
of restricted Common Units to management for cash
|
--
|
--
|
--
|
|
--
|
--
|
235
|
||||||||||||
|
Exchange
of Common Units for Common Stock
|
5,344
|
--
|
--
|
|
--
|
--
|
--
|
||||||||||||
|
Issuance
of Common Stock in Initial Public Offering, net
|
416,552
|
--
|
--
|
|
--
|
--
|
416,832
|
||||||||||||
|
Redemption
of Preferred Units
|
(18,315
|
)
|
--
|
--
|
--
|
(8,469
|
)
|
(199,835
|
)
|
||||||||||
|
Retirement
of Common Stock
|
(30,201
|
)
|
--
|
--
|
|
--
|
--
|
(30,248
|
)
|
||||||||||
|
Purchase
of Treasury Stock
|
--
|
2
|
(4
|
)
|
|
--
|
--
|
(4
|
)
|
||||||||||
|
Components
of comprehensive income
|
|
||||||||||||||||||
|
Net
income
|
--
|
--
|
--
|
--
|
10,220
|
10,220
|
|||||||||||||
|
Unrealized
gain on interest rate caps, net of income tax expense of
$200
|
--
|
--
|
--
|
|
320
|
--
|
320
|
||||||||||||
|
Total
comprehensive income
|
--
|
--
|
--
|
|
--
|
--
|
10,540
|
||||||||||||
|
Balance
at March 31, 2005
|
$
|
378,251
|
2
|
$ (4 | ) |
|
|
$
|
320
|
$
|
2,980
|
$
|
382,047
|
||||||
See
accompanying notes.
F-11
Prestige
Brands Holdings, Inc.
Consolidated
Statement of Changes in Members’
and
Stockholders’ Equity and Comprehensive Income
Years
Ended March 31, 2006
(Continued)
|
Common
Stock
Par
Shares Value
|
Additional
Paid-in
Capital
|
Treasury
Stock
Shares
Amount
|
Accumulated
Other
Comprehensive
Income
|
Retained
Earnings
|
Totals
|
||||||||||||||||||||
|
(In
thousands)
|
|||||||||||||||||||||||||
|
Balances
at March 31, 2005
|
50,000
|
$
|
500
|
$
|
378,251
|
2
|
$
|
(4
|
)
|
$
|
320
|
$
|
2,980
|
$
|
382,047
|
||||||||||
|
Additional
costs associated with initial public offering
|
--
|
--
|
(63
|
)
|
--
|
--
|
--
|
--
|
(63
|
)
|
|||||||||||||||
|
Stock-based
compensation
|
56
|
1
|
382
|
--
|
--
|
--
|
383
|
||||||||||||||||||
|
Purchase
of treasury stock
|
--
|
--
|
--
|
16
|
(26
|
)
|
--
|
--
|
(26
|
)
|
|||||||||||||||
|
Components
of comprehensive income
|
|||||||||||||||||||||||||
|
Net
income
|
--
|
--
|
--
|
--
|
--
|
--
|
26,277
|
26,277
|
|||||||||||||||||
|
Unrealized
gain on interest rate cap, net of income tax expense of
$400
|
--
|
--
|
--
|
--
|
--
|
789
|
--
|
789
|
|||||||||||||||||
|
Total
comprehensive income
|
--
|
--
|
--
|
--
|
--
|
--
|
--
|
27,066
|
|||||||||||||||||
|
Balances
at March 31, 2006
|
50,056
|
$
|
501
|
$
|
378,570
|
18
|
$
|
(30
|
)
|
$
|
1,109
|
$
|
29,257
|
$
|
409,407
|
||||||||||
See
accompanying notes.
F-12
Prestige
Brands Holdings, Inc.
Consolidated
Statements of Cash Flows
|
Year
Ended March 31
|
February
6, 2004
to
March 31,
|
April
1, 2003
to
February 5,
|
|||||||||||
|
(In
thousands)
|
2006
|
2005
|
2004
|
2004
|
|||||||||
|
(Successor
Basis)
|
(Successor
Basis)
|
(Predecessor
Basis)
|
|||||||||||
|
Operating
Activities
|
|||||||||||||
|
Net
income
|
$
|
26,277
|
$
|
10,220
|
$
|
1,229
|
$
|
3,145
|
|||||
|
Adjustments
to reconcile net income to net cash provided by (used for)
operating
activities:
|
|||||||||||||
|
Depreciation
and amortization
|
10,777
|
9,800
|
931
|
4,498
|
|||||||||
|
Amortization
of financing costs
|
2,649
|
2,943
|
134
|
1,271
|
|||||||||
|
Impairment
of goodwill and intangible assets
|
9,317
|
--
|
--
|
--
|
|||||||||
|
Deferred
income taxes
|
14,976
|
8,344
|
696
|
1,718
|
|||||||||
|
Stock-based
compensation
|
383
|
--
|
--
|
67
|
|||||||||
|
Loss
on extinguishment of debt
|
--
|
26,854
|
--
|
--
|
|||||||||
|
Other
|
--
|
9
|
71
|
376
|
|||||||||
|
Changes
in operating assets and liabilities, net of effects of
purchases of
businesses
|
|||||||||||||
|
Accounts
receivable
|
(1,350
|
)
|
(7,227
|
)
|
(898
|
)
|
1,069
|
||||||
|
Inventories
|
(7,156
|
)
|
2,922
|
207
|
(1,712
|
)
|
|||||||
|
Prepaid
expenses and other assets
|
2,623
|
(1,490
|
)
|
(52
|
)
|
259
|
|||||||
|
Accounts
payable
|
(6,037
|
)
|
5,059
|
574
|
(1,373
|
)
|
|||||||
|
Income
taxes payable
|
1,795
|
--
|
(326
|
)
|
336
|
||||||||
|
Other
accrued liabilities
|
(393
|
)
|
(6,392
|
)
|
(4,272
|
)
|
(1,811
|
)
|
|||||
|
Net
cash provided by (used for) operating activities
|
53,861
|
51,042
|
(1,706
|
)
|
7,843
|
||||||||
|
Investing
Activities
|
|||||||||||||
|
Purchases
of equipment
|
(519
|
)
|
(365
|
)
|
(42
|
)
|
(66
|
)
|
|||||
|
Purchases
of intangible assets
|
(22,655
|
)
|
--
|
--
|
(510
|
)
|
|||||||
|
Restricted
funds in escrow
|
--
|
--
|
700
|
--
|
|||||||||
|
Purchases
of businesses, net
|
(30,989
|
)
|
(425,479
|
)
|
(167,532
|
)
|
--
|
||||||
|
Net
cash used for investing activities
|
(54,163
|
)
|
(425,844
|
)
|
(166,874
|
)
|
(576
|
)
|
|||||
|
Financing
Activities
|
|||||||||||||
|
Proceeds
from the issuance of notes
|
30,000
|
698,512
|
154,786
|
13,539
|
|||||||||
|
Payment
of deferred financing costs
|
(13
|
)
|
(24,539
|
)
|
(2,841
|
)
|
(115
|
)
|
|||||
|
Repayment
of notes
|
(26,730
|
)
|
(529,538
|
)
|
(80,146
|
)
|
(24,682
|
)
|
|||||
|
Prepayment
penalty
|
--
|
(10,875
|
)
|
--
|
--
|
||||||||
|
Payments
on interest rate caps
|
--
|
(2,283
|
)
|
(197
|
)
|
--
|
|||||||
|
Proceeds
from the issuance of equity, net
|
(63
|
)
|
475,554
|
100,371
|
2,629
|
||||||||
|
Redemption
of equity interests
|
(26
|
)
|
(230,088
|
)
|
--
|
--
|
|||||||
|
Net
cash provided by (used for) financing activities
|
3,168
|
376,743
|
171,973
|
(8,629
|
)
|
||||||||
|
Increase
(decrease) in cash
|
2,866
|
1,941
|
3,393
|
(1,362
|
)
|
||||||||
|
Cash
- beginning of period
|
5,334
|
3,393
|
--
|
3,530
|
|||||||||
|
Cash
- end of period
|
$
|
8,200
|
$
|
5,334
|
$
|
3,393
|
$
|
2,168
|
|||||
See
accompanying notes.
F-13
Prestige
Brands Holdings, Inc.
Consolidated
Statements of Cash Flows
(Continued)
|
Year
Ended March 31
|
February
6, 2004
to
March 31,
|
April
1, 2003
to
February 5,
|
|||||||||||
|
2006
|
2005
|
2004
|
2004
|
||||||||||
|
(Successor
Basis)
|
(Successor
Basis)
|
(Predecessor
Basis)
|
|||||||||||
|
Supplemental
Cash Flow Information
|
|||||||||||||
|
Purchases
of Businesses
|
|||||||||||||
|
Fair
value of assets acquired, net of cash acquired
|
$
|
34,335
|
$
|
655,542
|
$
|
318,380
|
$
|
--
|
|||||
|
Fair
value of liabilities assumed
|
(3,346
|
)
|
(229,971
|
)
|
(131,371
|
)
|
--
|
||||||
|
Purchase
price funded with non-cash contributions
|
--
|
(92
|
)
|
(19,477
|
)
|
--
|
|||||||
|
Cash
paid to purchase businesses
|
$
|
30,989
|
$
|
425,479
|
$
|
167,532
|
$
|
--
|
|||||
|
Interest
paid
|
$
|
33,760
|
$
|
42,155
|
$
|
2,357
|
$
|
5,491
|
|||||
|
Income
taxes paid (refunded)
|
$
|
2,852
|
$
|
2,689
|
$
|
(31
|
)
|
$
|
159
|
||||
See
accompanying notes.
F-14
Prestige
Brands Holdings, Inc.
Notes
to Consolidated Financial Statements
|
1.
|
Business
and Basis of Presentation
|
Nature
of Business
Prestige
Brands Holdings, Inc. (the “Company”) and its subsidiaries are engaged in the
marketing, sales and distribution of over-the-counter drug, personal
care and
household cleaning brands to mass merchandisers, drug stores, supermarkets
and
club stores primarily in the United States.
On
February 6, 2004, Prestige International Holdings, LLC (“Prestige LLC”), through
two indirect wholly-owned subsidiaries, acquired all of the outstanding
capital
stock of Medtech Holdings, Inc. (“Medtech”) and The Denorex Company (“Denorex”)
(collectively the “Predecessor Company”) (the “Medtech Acquisition”). On March
5, 2004, Prestige LLC, through an indirect wholly-owned subsidiary,
acquired all
of the outstanding capital stock of The Spic and Span Company (“Spic and Span”)
(the “Spic and Span Acquisition”). On April 6, 2004, Prestige LLC, through an
indirect wholly-owned subsidiary, acquired all of the outstanding
capital stock
of Bonita Bay Holdings, Inc. (“Bonita Bay”) (the “Bonita Bay Acquisition”). On
October 6, 2004, Prestige LLC acquired, through an indirect wholly-owned
subsidiary, all of the outstanding capital stock of Vetco, Inc. (“Vetco”) (the
“Vetco Acquisition”). On February 9, 2005, the Company became the direct parent
company of Prestige LLC, under the terms of an exchange agreement
among the
Company, Prestige LLC and each holder of common units of Prestige
LLC. Prestige
LLC was controlled by affiliates of GTCR Golder Rauner II, LLC. Pursuant
to the
exchange agreement, the holders of common units of Prestige LLC exchanged
all of
their common units for an aggregate of 26.7 million shares of common
stock of
the Company. In February 2005, the Company completed an initial public
offering.
On November 8, 2005, the Company, through a wholly-owned subsidiary,
acquired
Dental Concepts, LLC (“Dental Concepts”).
Fiscal
Year
The
Company’s fiscal year ends on March 31st
of each
year. References in these financial statements or notes to a year
(e.g., “2005”)
means the Company’s fiscal year ended on March 31st of that year.
Basis
of Presentation
The
Medtech Acquisition was accounted for as a purchase transaction.
For financial
reporting purposes, Medtech and Denorex, which were under common
control and
management, are considered the predecessor entities. Accordingly,
the results of
operations and cash flows for the period from April 1, 2003 to February
5, 2004,
represent the combined historical financial statements of Medtech
and its
subsidiaries and Denorex (“predecessor basis”). The balance sheets of the
Company at March 31, 2006 and 2005, and the results of operations
and cash flows
for 2006 and 2005, and for the period from February 6, 2004 to March
31, 2004,
reflect those purchase accounting adjustments resulting from the
Medtech
Acquisition (“successor basis”). The Spic and Span, Bonita Bay, Vetco and Dental
Concepts acquisitions were also accounted for as purchase transactions.
The
results of operations and cash flows for Spic and Span, Bonita Bay,
Vetco and
Dental Concepts have been reflected in the Company’s consolidated statements of
operations and cash flows beginning from their respective acquisition
dates. The
formation of Prestige Holdings and exchange of common units for common
shares
was accounted for as a reorganization of entities under common control.
As a
result, there was no adjustment to the carrying value of the assets
and
liabilities. All significant intercompany transactions and balances
have been
eliminated.
Use
of Estimates
The
preparation of financial statements in conformity with accounting
principles
generally accepted in the United States of America requires management
to make
estimates and assumptions that affect the reported amounts of assets
and
liabilities and disclosure of contingent assets and liabilities at
the date of
the financial statements, as well as the reported amounts of revenues
and
expenses during the reporting period. Although these estimates are
based on the
Company’s knowledge of current events and actions that the Company may undertake
in the future, actual results could differ from those estimates.
As discussed
below, the Company’s most significant estimates include those made in connection
with the valuation of intangible assets, sales returns and allowances,
trade
promotional allowances and inventory obsolescence.
F-15
Cash
and Cash Equivalents
The
Company considers all short-term deposits and investments with original
maturities of three months or less to be cash equivalents. Substantially
all of
the Company’s cash is held by one bank located in Wyoming. The Company does not
believe that, as a result of this concentration, it is subject to
any unusual
financial risk beyond the normal risk associated with commercial
banking
relationships.
Accounts
Receivable
The
Company extends non-interest bearing trade credit to its customers
in the
ordinary course of business. The Company maintains an allowance for
doubtful
accounts receivable based upon historical collection experience and
expected
collectibility of the accounts receivable. In
an
effort to reduce credit risk, the Company (i) has established credit
limits for
all of its customer relationships, (ii) performs ongoing credit evaluations
of
customers’ financial condition, (iii) monitors the payment history and aging
of
customers’ receivables, and (iv) monitors open orders against an individual
customer’s outstanding receivable balance.
Inventories
Inventories
are stated at the lower of cost or fair value, where cost is determined
by using
the first-in, first-out method. The Company provides an allowance
for slow
moving and obsolete inventory, whereby it reduces
inventories for the diminution of value resulting from product obsolescence,
damage or other issues affecting marketability equal to the difference
between
the cost of the inventory and its estimated market value. Factors
utilized in
the determination of estimated market value include (i) current sales
data and
historical return rates, (ii) estimates of future demand, (iii) competitive
pricing pressures, (iv) new product introductions, (v) product expiration
dates,
and (vi) component and packaging obsolescence.
Property
and Equipment
Property
and equipment are stated at cost and are depreciated using the straight-line
method based on the following estimated useful lives:
|
Years
|
||
|
Machinery
|
5
|
|
|
Computer
equipment
|
3
|
|
|
Furniture
and fixtures
|
7
|
|
|
Leasehold
improvements
|
5
|
Expenditures
for maintenance and repairs are charged to expense as incurred. When
an asset is
sold or otherwise disposed of, the cost and associated accumulated
depreciation
are removed from the accounts and the resulting gain or loss is recognized
in
the consolidated statement of operations.
Property
and equipment are reviewed for impairment whenever events or changes
in
circumstances indicate that the carrying amount of such assets may
not be
recoverable. An impairment loss is recognized if the carrying amount
of the
asset exceeds its fair value.
Goodwill
The
excess of the purchase price over the fair market value of assets
acquired and
liabilities assumed in purchase business combinations is classified
as goodwill.
In accordance with Financial Accounting Standards Board (“FASB”) Statement of
Financial Accounting Standards (“Statement”) No. 142, “Goodwill and Other
Intangible Assets,” the Company does not amortize goodwill, but performs
impairment tests of the carrying value at least annually. The Company
tests
goodwill for impairment at the “brand” level which is one level below the
operating segment level.
Intangible
Assets
Intangible
assets are stated at cost less accumulated amortization. For intangible
assets
with finite lives, amortization is computed on the straight-line
method over
estimated useful lives ranging from five to 30 years.
Indefinite
lived intangible assets are tested for impairment at least annually,
while
intangible assets with finite lives are reviewed for impairment whenever
events
or changes in circumstances indicate that the carrying amount of
such assets may
not be recoverable. An impairment loss is recognized if the carrying
amount of
the asset exceeds its fair value.
F-16
Deferred
Financing Costs
The
Company has incurred debt issuance costs in connection with its long-term
debt.
These costs are capitalized as deferred financing costs and amortized
using the
effective interest method over the term of the related debt.
Revenue
Recognition
Revenues
are recognized in accordance with Securities and Exchange Commission
Staff
Accounting Bulletin 104, “Revenue Recognition,” when the following criteria are
met: (1) persuasive evidence of an arrangement exists; (2) the product
has been
shipped and the customer takes ownership and assumes risk of loss;
(3) the
selling price is fixed or determinable; and (4) collection of the
resulting
receivable is reasonably assured. The Company has determined that
the transfer
of risk of loss generally occurs when product is received by the
customer and,
accordingly, recognizes revenue at that time. Provision is made for
estimated
customer discounts and returns at the time of sale based on the Company’s
historical experience.
As
is
customary in the consumer products industry, the
Company participates
in the
promotional programs of its customers to enhance the sale of its
products.
The
cost
of these promotional programs varies based on the actual number of
units sold
during a finite period of time.
The
Company estimates the cost of such promotional programs at their
inception based
on historical experience and current market conditions and reduces
sales by such
estimates.
These
promotional programs consist of direct to consumer incentives such
as
coupons
and temporary price reductions, as well as incentives to the Company’s
customers, such as slotting and display fees, and cooperative advertising.
Estimates of the costs of these promotional programs are based on
(i) historical
sales experience, (ii) the current offering, (iii) forecasted data,
(iv) current
market conditions, and (v) communication with customer purchasing/marketing
personnel. At
the
completion of the promotional program, the estimated amounts are
adjusted to
actual results.
Due
to
the nature of the consumer products industry, the Company is required
to
estimate future product returns. Accordingly, the Company records
an estimate of
product returns concurrent with recording sales which is made after
analyzing
(i) historical return rates, (ii) current economic trends, (iii)
changes in
customer demand, (iv) product acceptance, (v) seasonality of our
product
offerings, and (vi) the impact of changes in product formulation,
packaging and
advertising.
Costs
of Sales
Costs
of
sales include product costs, warehousing costs, inbound and outbound
shipping
costs, and handling and storage costs. Shipping, warehousing and
handling costs
were $24.5 million and $22.7 million for the years ended March 31,
2006 and
2005, respectively, as well as $4.1 million and $1.1 million for
the periods
April 1, 2003 to February 5, 2004 and February 6, 2004 to March 31,
2004,
respectively.
Advertising
and Promotion Costs
Advertising
and promotion costs are expensed as incurred. Slotting fees associated
with
products are recognized as a reduction of sales. Under slotting arrangements,
the retailers allow the Company’s products to be placed on the stores’ shelves
in exchange for such fees. Direct reimbursements of advertising costs
are
reflected as a reduction of advertising costs in the period earned.
Stock-based
Compensation
During
2006, the Company adopted FASB, Statement No. 123(R), “Share-Based Payment”
(“Statement No. 123(R)”) with the initial grants of restricted stock and options
to purchase common stock to employees and directors in accordance
with the
provisions of the Company’s 2005 Long-Term
Equity Incentive Plan (“the Plan”). Statement No. 123(R) requires the Company to
measure the cost of services to be rendered based on the grant-date
fair value
of the equity award. Compensation expense is to be recognized over
the period
which an employee is required to provide service in exchange for
the award,
generally referred to as the requisite service period. The Company
recorded
non-cash compensation charges of $0.4 million during the year ended
March 31,
2006. There were no stock-based compensation charges incurred during
2005 or the
period from February 6, 2004 to March 31, 2004. The Company recorded
non-cash
compensation of $67,000 during the period from April 1, 2003 to February
5,
2005.
F-17
Income
Taxes
Income
taxes are recorded in accordance with the provisions of FASB Statement
No. 109,
“Accounting for Income Taxes” (“Statement No. 109”). Pursuant to Statement No.
109, deferred tax assets and liabilities are determined based on
the differences
between the financial reporting and tax bases of assets and liabilities
using
the enacted tax rates and laws that will be in effect when the differences
are
expected to reverse. A valuation allowance is established when necessary
to
reduce deferred tax assets to the amounts expected to be realized.
Derivative
Instruments
FASB
Statement No. 133, “Accounting for Derivative Instruments and Hedging
Activities” (“Statement No. 133”), requires companies to recognize derivative
instruments as either assets or liabilities in the balance sheet
at fair value.
The accounting for changes in the fair value of a derivative instrument
depends
on whether it has been designated and qualifies as part of a hedging
relationship and further, on the type of hedging relationship. For
those
derivative instruments that are designated and qualify as hedging
instruments, a
company must designate the hedging instrument, based upon the exposure
being
hedged, as a fair value hedge, a cash flow hedge or a hedge of a
net investment
in a foreign operation.
The
Company has designated its derivative financial instruments as cash
flow hedges
because they hedge exposure to variability in expected future cash
flows that
are attributable to interest rate risk. For these hedges, the effective
portion
of the gain or loss on the derivative instrument is reported as a
component of
other comprehensive income (loss) and reclassified into earnings
in the same
line item associated with the forecasted transaction in the same
period or
periods during which the hedged transaction affects earnings. Any
ineffective
portion of the gain or loss on the derivative instruments is recorded
in results
of operations immediately.
Earnings
Per Share
Basic
earnings per share is calculated based on income available to members
and common
stockholders and the weighted-average number of shares outstanding
during the
reported period. Diluted earnings per share is calculated based on
income
available to members and common stockholders and the weighted-average
number of
common and potential common shares outstanding during the reporting
period.
Potential common shares, composed of the incremental common shares
issuable upon
the exercise of stock options and unvested restricted shares, are
included in
the earnings per share calculation to the extent that they are dilutive.
For the
period from February 6, 2004 to March 31, 2004, the weighted average
number of
common shares outstanding includes the Company’s common units as if the common
units had been converted to common stock using the February 2005
initial public
offering conversion ratio of one common unit to 0.4589 shares of
common
stock.
Fair
Value of Financial Instruments
The
carrying value of cash, accounts receivable and accounts payable
at March 31,
2006 and 2005 approximates fair value due to the short-term nature
of these
instruments. The carrying value of long-term debt at March 31, 2006
and 2005
approximates fair value based on interest rates for instruments with
similar
terms and maturities.
Recently
Issued Accounting Standards
In
March
2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional
Asset Retirement Obligations” (“FIN 47”) which clarifies guidance provided by
Statement No. 143, “Accounting for Asset Retirement Obligations.” FIN 47 is
effective for the Company no later than March 31, 2006. The adoption
of FIN 47
had no impact on the Company’s financial position, results of operations or cash
flows.
In
May
2005, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No.
154, “Accounting Changes and Error Corrections” (“Statement No. 154”) which
replaces Accounting Principles Board Opinion No. 20, “Accounting Changes” (“APB
Opinion No. 20”) and FASB Statement No. 3, “Reporting Accounting Changes in
Interim Financial Statements.” Statement No. 154 requires that voluntary changes
in accounting principle be applied retrospectively to the balances
of assets and
liabilities as of the beginning of the earliest period for which
retrospective
application is practicable and that a corresponding adjustments be
made to the
opening balance of retained earnings. APB Opinion No. 20 had required
that most
voluntary changes in accounting principle be recognized by including
in net
income the cumulative effect of changing to the new principle. Statement
No. 154
is effective for all accounting changes and corrections of errors
made in fiscal
years beginning after December 15, 2005.
F-18
|
2.
|
Acquisition
of Businesses
|
Acquisitions
of Medtech, Denorex and Spic and Span
On
February 6, 2004, the Company acquired all of the outstanding capital
stock of
Medtech and Denorex for a purchase price of approximately $244.3
million
(including fees and expenses of $2.4 million).
On
March
5, 2004, the Company acquired all of the outstanding capital stock
of Spic and
Span for a purchase price of approximately $30.3 million.
The
Medtech Acquisition, including fees and expenses related to the new
financing of
$7.7 million, and the Spic and Span Acquisition were financed through
the
following sources:
|
(In
Thousands)
|
Medtech
|
Spic
and Span
|
|||||
|
Medtech
revolving credit facility
|
$
|
195
|
$
|
11,650
|
|||
|
Medtech
term loan facility
|
100,000
|
--
|
|||||
|
Medtech
subordinated notes
|
42,941
|
--
|
|||||
|
Issuance
of Preferred and Common Units
|
106,951
|
17,768
|
|||||
|
Total
sources of funds
|
$
|
250,087
|
$
|
29,418
|
|||
The
total
purchase prices of the Medtech Acquisition (which included cash of
$166.1
million paid to the selling stockholders, Prestige LLC Class B Preferred
Units
valued at an aggregate of $1.2 million, and Prestige LLC Common Units
valued at
an aggregate of $0.5 million, assumed debt and accrued interest which
was
retired of $74.0 million and acquisition costs of $2.4 million) and
the Spic and
Span Acquisition (which included cash of $4.9 million paid to the
selling
stockholders, 23,000 Prestige LLC Senior Preferred Units issued to
the selling
stockholders valued at $17.8 million, and assumed debt and accrued
interest
which was retired of $7.6 million) were allocated to the acquired
assets and
liabilities as set forth in the following table:
|
(In
Thousands)
|
Medtech
|
Spic
and Span
|
Total
|
|||||||
|
Cash
|
$
|
2,168
|
$
|
1,063
|
$
|
3,231
|
||||
|
Restricted
cash
|
700
|
--
|
700
|
|||||||
|
Accounts
receivable
|
10,622
|
1,849
|
12,471
|
|||||||
|
Inventories
|
9,959
|
908
|
10,867
|
|||||||
|
Prepaid
expenses and other current assets
|
151
|
31
|
182
|
|||||||
|
Property
and equipment
|
434
|
445
|
879
|
|||||||
|
Goodwill
|
55,639
|
--
|
55,639
|
|||||||
|
Intangible
assets
|
209,330
|
28,171
|
237,501
|
|||||||
|
Deferred
income taxes
|
--
|
141
|
141
|
|||||||
|
Accounts
payable
|
(6,672
|
)
|
(1,644
|
)
|
(8,316
|
)
|
||||
|
Accrued
liabilities
|
(6,264
|
)
|
(1,341
|
)
|
(7,605
|
)
|
||||
|
Long-term
debt
|
(71,868
|
)
|
(6,981
|
)
|
(78,849
|
)
|
||||
|
Deferred
income taxes
|
(36,601
|
)
|
--
|
(36,601
|
)
|
|||||
|
$
|
167,598
|
$
|
22,642
|
$
|
190,240
|
|||||
The
value
of the Prestige LLC Class B Preferred Units and the Prestige LLC
Common Units
issued to the selling stockholders was determined based on the cash
consideration received from GTCR and other investors concurrently
with the
acquisitions. The value of the Prestige LLC Senior Preferred Units
issued to the
selling stockholders in the Spic and Span Acquisition was determined
based on
the estimated cash flows that will accrue to the owners of the Senior
Preferred
Units, the timing of receipt and a market-based required rate of
return for the
Senior Preferred Units. A “unit” is an equity interest of a unitholder in the
profits, losses and distributions of a limited liability company,
or
“LLC.”
As
a
result of the Medtech Acquisition, the Company recorded indefinite
lived
trademarks of $153.2 million and
F-19
$56.1
million of trademarks with an estimated weighted average useful life
of 11
years. As a result of the Spic and Span Acquisition, the Company
recorded
indefinite lived trademarks of $28.2 million.
Acquisition
of Bonita Bay
On
April
6, 2004, the Company acquired all of the outstanding capital stock
of Bonita Bay
for a purchase price of approximately $561.3 million (including working
capital
adjustments totaling $1.1 million). In accordance with Statement
No. 141, the
Company was determined to be the accounting acquirer.
The
Bonita Bay Acquisition, including fees and expenses related to the
new financing
of $22.7 million and funds used to pay off $154.4 million of debt
and accrued
interest incurred to finance the Medtech Acquisition, was financed
through the
following sources:
| (In Thousands) | ||||
|
Revolving
Credit Facility
|
$
|
3,512
|
||
|
Tranche
B Term Loan Facility
|
355,000
|
|||
|
Tranche
C Term Loan Facility
|
100,000
|
|||
|
9.25%
Senior Subordinated Notes
|
210,000
|
|||
|
Issuance
of Preferred and Common units
|
58,579
|
|||
|
Total
sources of funds
|
$
|
727,091
|
The
total
purchase price of the Bonita Bay Acquisition (which included cash
of $379.2
million paid to the selling stockholders, Prestige LLC Class B Preferred
Units
valued at an aggregate of $91,000 and Prestige LLC Common Units valued
at an
aggregate of $1,000, assumed debt and accrued interest which was
retired of
$176.9 million and acquisition costs of $3.6 million, was allocated
to the
acquired assets and liabilities as set forth in the following
table:
| (In Thousands) | ||||
|
Cash
|
$
|
4,304
|
||
|
Accounts
receivable
|
13,186
|
|||
|
Inventories
|
16,185
|
|||
|
Prepaid
expenses and other current assets
|
1,391
|
|||
|
Property
and equipment
|
2,982
|
|||
|
Goodwill
|
217,234
|
|||
|
Intangible
assets
|
352,460
|
|||
|
Accounts
payable and accrued liabilities
|
(21,189
|
)
|
||
|
Long-term
debt
|
(172,898
|
)
|
||
|
Deferred
income taxes
|
(34,429
|
)
|
||
|
$
|
379,226
|
As
a
result of the Bonita Bay Acquisition, the Company recorded indefinite
lived
trademarks of $340.7 million and $11.8 million of trademarks with
an estimated
weighted average useful life of seven years.
Acquisition
of Vetco, Inc.
On
October 6, 2004, the Company acquired all the outstanding stock of
Vetco, Inc.
for a purchase price of approximately $50.6 million. To finance the
acquisition,
the Company used cash on hand of approximately $20.6 million and
borrowed an
additional $12.0 million on its Revolving Credit Facility and $18.0
million on
its Tranche B Term Loan Facility.
F-20
The
total
purchase price of the Vetco Acquisition was allocated to the acquired
assets and
liabilities as set forth in the following table:
|
(In
Thousands)
|
||||
|
Accounts
receivable
|
$
|
2,136
|
||
|
Inventories
|
910
|
|||
|
Prepaid
expenses and other current assets
|
37
|
|||
|
Property
and equipment
|
5
|
|||
|
Goodwill
|
21,858
|
|||
|
Intangible
assets
|
27,158
|
|||
|
Accounts
payable and accrued liabilities
|
(1,455
|
)
|
||
|
$
|
50,649
|
|||
As
a
result of the Vetco Acquisition, the Company recorded $27.0 million
of
trademarks with an estimated useful life of 20 years and $158,000
related to a
5-year non-compete agreement with the former owner of Vetco.
The
following table reflects the unaudited results of the Company’s operations on a
pro forma basis as if the Medtech, Spic and Span, Bonita Bay and
Vetco
Acquisitions had been completed on April 1, 2003. The pro forma financial
information is not necessarily indicative of the operating results
that would
have occurred had the acquisitions been consummated as of April 1,
2003, nor is
it necessarily indicative of future operating results.
|
Years
Ended March 31
|
|||||||
|
2005
|
2004
|
||||||
|
(Unaudited
Pro forma)
|
|||||||
|
Net
sales
|
$
|
295,247
|
$
|
282,418
|
|||
|
Income
before income taxes
|
$
|
29,277
|
$
|
37,921
|
|||
|
Net
income
|
$
|
17,733
|
$
|
23,156
|
|||
|
Cumulative
preferred dividends on Senior
Preferred
and Class B Preferred Units
|
(25,395
|
)
|
|||||
|
Net
income (loss) available to members and
common
stockholders
|
(7,662
|
)
|
|||||
|
Basic
and diluted earnings (loss) per share
|
$
|
(0.28
|
)
|
||||
|
Basic
and diluted weighted average shares outstanding
|
27,546
|
||||||
Acquisition
of Dental Concepts, LLC
On
November 8, 2005, the Company acquired all of the ownership interests
of Dental
Concepts, LLC (“Dental Concepts”), a marketer of therapeutic oral care products
sold under “The
Doctor’s®”
brand.
The Company expects that The
Doctor’s®
product
line will benefit from its business model of outsourcing manufacturing
and
increasing awareness through targeted marketing and advertising.
Additionally,
the Company anticipates benefits associated with its ability to leverage
certain
economies of scale and the elimination of redundant operations.
The
purchase price of the ownership interests was approximately $30.9
million (net
of cash acquired of $0.3 million), including fees and expenses of
the
acquisition of $0.9 million. The Company financed the acquisition
price through
the utilization of its senior revolving credit facility and with
cash resources
of $30.0 million and $0.9 million, respectively.
The
following table summarizes the estimated fair values of the assets
acquired and
the liabilities assumed at the
F-21
date
of
acquisition. The Company has obtained independent valuations of certain
tangible
and intangible assets; however, the final purchase price will not
be determined
until all contingencies have been resolved. Consequently, the allocation
of the
purchase price is subject to refinement. At March 31, 2006, $1.5
million is
being held in escrow pending the resolution of the aforementioned
contingencies.
Future disbursements from escrow will increase the amount recorded
in the
Company’s consolidated balance sheet as goodwill.
The
fair
values assigned to the acquired assets and liabilities consist of
the
following:
|
(In
thousands)
|
||||
|
Accounts
receivable
|
$
|
2,774
|
||
|
Inventories
|
1,852
|
|||
|
Prepaid
expenses and other current assets
|
172
|
|||
|
Property
and equipment
|
546
|
|||
|
Goodwill
|
5,096
|
|||
|
Intangible
assets
|
22,395
|
|||
|
Funds
in escrow
|
1,500
|
|||
|
Accounts
payable and accrued liabilities
|
(3,346
|
)
|
||
|
$
|
30,989
|
|||
As
a
result of the Dental Concepts acquisition, the Company recorded a
trademark
valued at $22.4 million with an estimated useful life of 20 years.
Goodwill
resulting from this transaction was $5.1 million. As discussed above,
this
recorded amount is subject to change as additional information becomes
available; however, it is estimated that such amount will be fully
deductible
for income tax purposes.
The
following table reflects the unaudited results of the Company’s operations on a
pro forma basis as if the Dental Concepts acquisition had been completed
on
April 1, 2004. It also includes the pro forma results from operations
of Vetco,
Inc., which was acquired in October 2004, as if the acquisition of
Vetco, Inc.
had been completed on April 1, 2004. The pro forma financial information
is not
necessarily indicative of the operating results that would have occurred
had the
acquisitions been consummated on April 1, 2004, nor is it necessarily
indicative
of future operating results.
|
Year
Ended March 31
|
|||||||
|
(In
thousands, except per share data)
|
2006
|
2005
|
|||||
|
(Unaudited
Pro forma)
|
|||||||
|
Revenues
|
$
|
304,711
|
$
|
308,062
|
|||
|
Income
before provision for income taxes
|
$
|
46,772
|
$
|
20,730
|
|||
|
Net
income
|
$
|
25,797
|
$
|
11,418
|
|||
|
Cumulative
preferred dividends on Senior Preferred and Class B Preferred
Units
|
--
|
(25,395
|
)
|
||||
|
Net
income available to members and common shareholders
|
$
|
25,797
|
$
|
13,977
|
|||
|
Basic
earnings per share
|
$
|
0.53
|
$
|
(0.51
|
)
|
||
|
Diluted
earnings per share
|
$
|
0.52
|
$
|
(0.51
|
)
|
||
|
Weighted
average shares outstanding:
Basic
|
48,908
|
27,546
|
|||||
|
Diluted
|
50,008
|
27,546
|
|||||
F-22
|
Accounts
Receivable
|
Accounts
receivable consist of the following (in thousands):
|
March
31
|
|||||||
|
2006
|
2005
|
||||||
|
Accounts
receivable
|
$
|
40,140
|
$
|
36,985
|
|||
|
Other
receivables
|
1,870
|
835
|
|||||
|
42,010
|
37,820
|
||||||
|
Less
allowances for discounts, returns and
uncollectible
accounts
|
(1,968
|
)
|
(1,902
|
)
|
|||
|
$
|
40,042
|
$
|
35,918
|
||||
|
Inventories
|
Inventories
consist of the following (in thousands):
|
March
31
|
|||||||
|
2006
|
2005
|
||||||
|
Packaging
and raw materials
|
$
|
3,278
|
$
|
3,587
|
|||
|
Finished
goods
|
30,563
|
21,246
|
|||||
|
$
|
33,841
|
$
|
24,833
|
||||
Inventories
are shown net of allowances for obsolete and slow moving inventory
of $1.0
million and $1.5 million at March 31, 2006 and 2005, respectively.
Property
and equipment consist of the following (in thousands):
|
March
31
|
|||||||
|
2006
|
2005
|
||||||
|
Machinery
|
$
|
3,722
|
$
|
3,099
|
|||
|
Computer
equipment
|
987
|
771
|
|||||
|
Furniture
and fixtures
|
303
|
244
|
|||||
|
Leasehold
improvements
|
340
|
173
|
|||||
|
5,352
|
4,287
|
||||||
|
Accumulated
depreciation
|
(3,699
|
)
|
(1,963
|
)
|
|||
|
$
|
1,653
|
$
|
2,324
|
||||
F-23
6. Goodwill
A
reconciliation of the activity affecting goodwill by operating segment
is as
follows (in thousands):
|
Over-the-Counter
|
Personal
|
Household
|
|||||||||||
|
Drug
|
Care
|
Cleaning
|
Consolidated
|
||||||||||
|
Balance
- March 31, 2004
|
$
|
51,138
|
$
|
4,643
|
$
|
--
|
$
|
55,781
|
|||||
|
Additions
|
166,543
|
--
|
72,549
|
239,092
|
|||||||||
|
Adjustment
related to the February 2004 Medtech acquisition
|
(142
|
)
|
--
|
--
|
(142
|
)
|
|||||||
|
Balance
- March 31, 2005
|
217,539
|
4,643
|
72,549
|
294,731
|
|||||||||
|
Additions
|
5,096
|
--
|
--
|
5,096
|
|||||||||
|
Impairments
|
--
|
(1,892
|
)
|
--
|
(1,892
|
)
|
|||||||
|
Balance
- March 31, 2006
|
$
|
222,635
|
$
|
2,751
|
$
|
72,549
|
$
|
297,935
|
|||||
In
connection with the annual test for goodwill impairment, the Company
recorded a
$1.9 million charge to adjust the carrying amount of goodwill related
to one of
the reporting units in the personal care segment to its fair value
as determined
by use of discounted cash flow methodologies.
7. Intangible
Assets
On
October 28, 2005, the Company acquired the “Chore
Boy®”
brand
of cleaning pads and sponges for $22.7 million, including direct
costs of $0.5
million.
During
2006, management determined that declining sales in the Company’s personal care
segment might be indicative of an impairment of the Company’s intangible assets.
Accordingly, in connection with its annual impairment tests of goodwill
and
indefinite-lived intangibles in accordance Statement No. 142, management
also
performed an impairment analysis for all of the Company’s finite-lived
intangible assets in accordance with Statement No. 144. As a result
of this
analysis, the Company recorded a $7.4 million charge to adjust the
carrying
amount of certain trademarks related to the personal care segment
to their fair
values as determined by use of discounted cash flow methodologies.
The Company
also recorded a related impairment charge to goodwill.
F-24
A
reconciliation of the activity affecting intangible assets is as
follows (in
thousands):
|
Year
Ended March 31, 2006
|
|||||||||||||
|
Indefinite
Lived
|
Finite
Lived
|
Non
Compete
|
|||||||||||
|
Trademarks
|
Trademarks
|
Agreement
|
Totals
|
||||||||||
|
Carrying
Amounts
|
|||||||||||||
|
Balance
- March 31, 2005
|
$
|
522,346
|
$
|
94,900
|
$
|
158
|
$
|
617,404
|
|||||
|
Additions
|
22,617
|
22,395
|
38
|
45,050
|
|||||||||
|
Impairments
|
--
|
(7,425
|
)
|
--
|
(7,425
|
)
|
|||||||
|
Balance
- March 31, 2006
|
$
|
544,963
|
$
|
109,870
|
$
|
196
|
$
|
655,029
|
|||||
|
Accumulated
Amortization
|
|||||||||||||
|
Balance
- March 31, 2005
|
$
|
--
|
$
|
8,775
|
$
|
16
|
$
|
8,791
|
|||||
|
Additions
|
--
|
9,004
|
37
|
9,041
|
|||||||||
|
Balance
- March 31, 2006
|
$
|
--
|
$
|
17,779
|
$
|
53
|
$
|
17,832
|
|||||
|
Year
Ended March 31, 2005
|
|||||||||||||
|
Indefinite
Lived
|
Finite
Lived
|
Non
Compete
|
|||||||||||
|
Trademarks
|
Trademarks
|
Agreement
|
Totals
|
||||||||||
|
Carrying
Amounts
|
|||||||||||||
|
Balance
- March 31, 2004
|
$
|
181,361
|
$
|
56,140
|
$
|
--
|
$
|
237,501
|
|||||
|
Additions
|
340,985
|
38,760
|
158
|
379,903
|
|||||||||
|
Balance
- March 31, 2005
|
$
|
522,346
|
$
|
94,900
|
$
|
158
|
$
|
617,404
|
|||||
|
Accumulated
Amortization
|
|||||||||||||
|
Balance
- March 31, 2004
|
$
|
--
|
$
|
890
|
$
|
--
|
$
|
890
|
|||||
|
Additions
|
--
|
7,885
|
16
|
7,901
|
|||||||||
|
Balance
- March 31, 2005
|
$
|
--
|
$
|
8,775
|
$
|
16
|
$
|
8,791
|
|||||
At
March
31, 2006, intangible assets are expected to be amortized over a period
of five
to 30 years as follows (in thousands):
|
Year
Ending March 31
|
||||
|
2007
|
$
|
8,774
|
||
|
2008
|
8,774
|
|||
|
2009
|
8,769
|
|||
|
2010
|
7,354
|
|||
|
2011
|
7,338
|
|||
|
Thereafter
|
51,225
|
|||
|
$
|
92,234
|
|||
F-25
8. Other
Accrued Liabilities
Other
accrued liabilities consist of the following (in thousands):
|
|
March 31
|
|
||||||||
|
|
2006
|
2005
|
||||||||
|
|
||||||||||
|
Accrued
marketing costs
|
$
|
2,513
|
$
|
2,693
|
||||||
|
Reserve
for Pecos returns
|
--
|
242
|
||||||||
|
Accrued
payroll
|
813
|
2,004
|
||||||||
|
Accrued
commissions
|
248
|
184
|
||||||||
|
Other
|
1,008
|
(594
|
)
|
|||||||
|
|
$
|
4,582
|
$
|
4,529
|
||||||
F-26
9. Long-Term
Debt
|
Long-term
debt consists of the following (in thousands):
|
March
31
|
||||||
|
2006
|
2005
|
||||||
|
Senior
revolving credit facility (“Revolving Credit Facility”), which expires on
April 6, 2009, is available for maximum borrowings of up
to $60.0 million.
The Revolving Credit Facility bears interest at the Company’s option at
either the prime rate plus a variable margin or LIBOR plus
a variable
margin. The variable margins range from 0.75% to 2.50%
and at March 31,
2006, the interest rate on the Revolving Credit Facility
was 9.0% per
annum. The Company is also required to pay a variable commitment
fee on
the unused portion of the Revolving Credit Facility. At
March 31, 2006,
the commitment fee was 0.50% of the unused line. The Revolving
Credit
Facility is collateralized by substantially all of the
Company’s
assets.
|
$
|
7,000
|
$
|
--
|
|||
|
Senior
secured term loan facility, (“Tranche B Term Loan Facility”) that bears
interest at the Company’s option at either the prime rate plus a margin of
1.25% or LIBOR plus a margin of 2.25%. At March 31, 2006,
the weighted
average applicable interest rate on the Tranche B Term
Loan Facility was
7.22%. Principal payments of $933 and interest are payable
quarterly. In
February 2005, the Tranche B Term Loan Facility was amended
to increase
the amount available thereunder by $200.0 million, all
of which is
available at March 31, 2006. Current amounts outstanding
under the Tranche
B Term Loan Facility mature on April 6, 2011, while amounts
borrowed
pursuant to the amendment will mature on October 6, 2011.
The Tranche B
Term Loan Facility is collateralized by substantially all
of the Company’s
assets.
|
365,630
|
369,360
|
|||||
|
Senior
Subordinated Notes (“Senior Notes”) that bear interest at 9.25% which is
payable on April 15th
and October 15th
of
each year. The Senior Notes mature on April 15, 2012; however,
the Company
may redeem some or all of the Senior Notes on or prior
to April 15, 2008
at a redemption price equal to 100%, plus a make-whole
premium, and on or
after April 15, 2008 at redemption prices set forth in
the indenture
governing the Senior Notes. The Senior Notes are unconditionally
guaranteed by Prestige Brands International, LLC (“Prestige
International”), a wholly-owned subsidiary, and Prestige International’s
wholly-owned subsidiaries (other than the issuer). Each
of these
guarantees is joint and several. There are no significant
restrictions on
the ability of any of the guarantors to obtain funds from
their
subsidiaries.
|
126,000
|
126,000
|
|||||
|
498,630
|
495,360
|
||||||
|
Current
portion of long-term debt
|
(3,730
|
)
|
(3,730
|
)
|
|||
|
$
|
494,900
|
$
|
491,630
|
||||
The
Revolving Credit Facility and the Tranche B Term Loan Facility (together
the
“Senior Credit Facility”) contain various financial covenants, including
provisions that require the Company to maintain certain leverage
ratios,
interest coverage ratios and fixed charge coverage ratios. The Senior
Credit
Facility and the Senior Notes
F-27
also
contain provisions that restrict the Company from undertaking specified
corporate actions, such as asset dispositions, acquisitions, dividend
payments,
repurchase of common shares outstanding, changes of control, incurrence
of
indebtedness, creation of liens and transactions with affiliates.
Additionally,
the Senior Credit Facility and the Senior Notes contain cross-default
provisions
whereby a default pursuant to the terms and conditions of either
indebtedness
will cause a default on the remaining indebtedness. The Company was
in
compliance with its applicable financial and restrictive covenants
under the
Senior Credit Facility and the indenture governing the Senior Notes
at March 31,
2006.
Future
principal payments required in accordance with the terms of the Senior
Credit
Facility and the Senior Notes are as follows (in thousands):
|
Year
Ending March 31
|
||||
|
2007
|
$
|
3,730
|
||
|
2008
|
3,730
|
|||
|
2009
|
3,730
|
|||
|
20010
|
10,730
|
|||
|
2011
|
3,730
|
|||
|
Thereafter
|
472,980
|
|||
|
$
|
498,630
|
|||
The
Company entered into a 5% interest rate cap agreement with a financial
institution to mitigate the impact of changing interest rates. The
agreement
provides for a notional amount of $20.0 million and terminates in
June 2006. The
Company also entered into interest rate cap agreements with another
financial
institution that became effective on August 30, 2005, with a total
notional
amount of $180.0 million and cap rates ranging from 3.25% to 3.75%.
The
agreements terminate on May 30, 2006, 2007 and 2008 as to $50.0 million,
$80.0
million and $50.0 million, respectively. The Company is accounting
for the
interest rate cap agreements as cash flow hedges. The fair value
of the interest
rate cap agreements, which is included in other long-term assets,
was $3.3
million and $2.8 million at March
31,
2006 and 2005, respectively.
10. Stockholders’
Equity
The
Company is authorized to issue 250.0 million shares of common stock,
$0.01 par
value per share, and 5.0 million shares of preferred stock, $0.01
par value per
share. The Board of Directors may direct the issuance of the undesignated
preferred stock in one or more series and determine preferences,
privileges and
restrictions thereof.
Each
share of common stock has the right to one vote on all matters submitted
to a
vote of stockholders. The holders of common stock are also entitled
to receive
dividends whenever funds are legally available and when declared
by the Board of
Directors, subject to prior rights of holders of all classes of stock
outstanding having priority rights as to dividends. No dividends
have been
declared or paid on the Company’s common stock through March 31,
2006.
Prior
to
the Company’s initial public offering in February 2005, Prestige LLC had four
classes of units: Senior Preferred Units, Class A Preferred Units,
Class B
Preferred Units and Common Units. A “unit” is an equity interest of a unitholder
in the profits, losses and distributions of the Company.
On
February 9, 2005, the Company became the direct parent company of
Prestige LLC,
under the terms of an exchange agreement among the Company, Prestige
LLC and
each holder of common units of Prestige LLC. Pursuant to the exchange
agreement,
the holders of common units of Prestige LLC exchanged all their common
units for
an aggregate of 26.7 million shares of common stock of the Company.
On
February 6, 2004, in connection with the Medtech Acquisition, certain
senior
executive officers purchased an aggregate of 5.3 million common units
of
Prestige LLC at $.10 per unit. These units were purchased on the
same day and at
the same price that GTCR and TCW/Crescent Partners, the Company’s unrelated
equity investors (the “Sponsors”), purchased 50.0 million common units. The
value of the common units purchased in connection with
F-28
the
Medtech Acquisition was determined by subtracting from the acquisition
purchase
price, the total debt outstanding immediately following the acquisition
and the
liquidation value of outstanding preferred units issued in the acquisition.
On
March 17, 2004, other executive officers purchased an aggregate of 405,000
common units at a price of $.10 per unit. The Sponsors did not purchase
any
common units at this time. On April 6, 2004, two employees purchased an
aggregate of 50,000 common units at a price of $.10 per unit. The
Sponsors did
not purchase any common units at this time. Each of the above-referenced
purchase transactions by management were conducted at fair market
value based
upon the price paid by the Sponsors in the Medtech Acquisition and
the fact that
such purchases were made at the same price and at the same time or
shortly
thereafter. Certain
of these shares are subject to vesting requirements over a period
of 5 years. No
compensation cost was recorded in connection with the issuance of
these units as
these units were purchased by management. As of March 31, 2006, there
were
approximately 655,000 shares of unvested restricted stock related
to these
employee purchases.
On
November 1, 2004, certain non-executive employees purchased an aggregate
of
337,000 common units, for $0.70 per unit, which was equal to fair
market value,
and which vest over a period of 5 years. This determination was based
on a
contemporaneous valuation that utilized traditional methodologies,
including
market multiples, comparable transaction and discounted cash flow.
Prestige LLC
relied on this fair market value analysis in setting the $0.70 per
unit price
for the purchases. Prestige LLC awarded a total cash bonus of $235,000
to allow
employees to purchase such units. In connection therewith, Prestige
LLC recorded
a bonus expense of $235,000. In this regard, all employee purchases
were
conducted at fair market value based upon the contemporaneous valuation.
As
of
March 31, 2006, there were approximately 62,000 shares of unvested
restricted
stock related to these employee purchases.
In
February 2005, the Company completed its initial public offering,
pursuant to
which it sold 28.0 million shares of its common stock and selling
stockholders
sold 4.2 million shares of common stock at a price of $16.00 per
share. The
offering resulted in proceeds to the Company of approximately $416.8
million,
net of $3.1 million of issuance costs. In connection with the offering,
the
Company retired 4.7 million shares of its common stock for an aggregate
cost of
$30.2 million. Upon completion of the initial public offering, there
were 50.0
million shares of the Company’s common stock issued and
outstanding.
On
February 15, 2005, Prestige LLC, used a portion of the net proceeds
from the
initial public offering to redeem all the outstanding Senior Preferred
Units and
Class B Preferred Units for $199.8 million, which included cumulative
and
liquidating dividends of $26.8 million. The cumulative dividends
were based on
an 8% per year rate of return.
On
July
29, 2005, each of the Company’s four independent members of the Board of
Directors received an award of 6,222 shares of common stock in connection
with
Company’s directors’ compensation arrangements. Of such amount, 1,778 shares
represent a one-time grant of unrestricted shares, while the remaining
4,444
shares represent restricted shares that vest over a two year
period.
On
August
4, 2005, the Company named a new President and Chief Operating Officer.
In
connection therewith, the Board of Directors granted this individual
30,888
shares of restricted common stock with a fair market value of $12.95
per share,
the closing price of the common stock on August 4, 2005, and options
to purchase
an additional 61,776 shares of common stock at an exercise price
of $12.95 per
share. The options vest over a period of five years while the restricted
shares
vest contingent upon the attainment of certain revenue and earnings
per share
targets.
In
October 2005, the Company’s Board of Directors authorized the grant of 156,000
shares of restricted common stock with a fair market value of $12.32
per share,
the closing price of the Company’s common stock on September 30, 2005, to
employees. The issuance of such shares is contingent upon the Company’s
attainment of certain revenue and earnings per share targets. Additionally,
in
the event that an employee terminates his or her employment with
the Company
prior to October 1, 2008, the vesting date, the shares will be
forfeited.
During
2006, the Company repurchased 16,000 shares of restricted common
stock from
former employees pursuant to the provisions of the various employee
stock
purchase agreements. The average purchase price of the shares was
$1.70 per
share.
F-29
11. Earnings
Per Share
The
following table sets forth the computation of basic and diluted earnings
per
share (in thousands):
|
Year
Ended March 31
|
February
6, 2004
to
March 31
2004
|
|||||||||
|
2006
|
2005
|
|||||||||
|
Numerator
|
||||||||||
|
Net
income
|
$
|
26,277
|
$
|
10,220
|
$
|
1,229
|
||||
|
Cumulative
preferred dividends on Senior Preferred and Class B Preferred
Units
|
--
|
(25,395
|
)
|
(1,390
|
)
|
|||||
|
Net
income (loss) available to members and common stockholders
|
$
|
26,277
|
$
|
(15,175
|
)
|
$
|
(161
|
)
|
||
|
Denominator
|
||||||||||
|
Denominator
for basic earnings per share - weighted average shares
|
48,908
|
27,546
|
24,472
|
|||||||
|
Dilutive
effect of unvested restricted common stock issued to employees
and
directors
|
1,100
|
--
|
--
|
|||||||
|
Denominator
for diluted earnings per share
|
50,008
|
27,546
|
24,472
|
|||||||
|
Earnings
per Common Share:
|
||||||||||
|
Basic
|
$
|
0.54
|
$
|
(0.55
|
)
|
$
|
(0.01
|
)
|
||
|
Diluted
|
$
|
0.53
|
$
|
(0.55
|
)
|
$
|
(0.01
|
)
|
||
Outstanding
employee stock options to purchase an aggregate of 61,800 shares
of common stock
at March 31, 2006 were not included in the computation of diluted
earnings per
share because their exercise price was greater than the average market
price of
the common stock, and therefore, their inclusion would be antidilutive.
At March
31, 2006, 728,000 restricted shares issued to management and employees
are
unvested; however, such shares are included in the calculation of
diluted
earnings per share. Additionally, 180,000 shares of restricted stock
granted to
management and employees have been excluded from the calculation
of both basic
and diluted earnings per share since vesting of such shares is subject
to
contingencies.
12. Related
Party Transactions
The
Company had entered into an agreement with an affiliate of GTCR Golder
Rauner
II, LLC (“GTCR”), a private equity firm and an investor in the Company, whereby
the GTCR affiliate was to provide management and advisory services
to the
Company for an aggregate annual compensation of $4.0 million. The
agreement was
terminated in February 2005. The
total
fee paid to the GTCR affiliate during 2005 was $3.4 million. During
2004, in
conjunction with the Medtech and Denorex Acquisitions, the Company
paid an
affiliate of GTCR a fee of $5.0 million.
F-30
In
January 2004, the Company forgave a $1.4 million receivable from
Spic and
Span.
The
Predecessor Company entered into agreements with its majority stockholder
to
provide advisory and management services. For the period from April
1, 2003 to
February 5, 2004, the Predecessor Company incurred $1.3 million for
these
services. In addition, the Predecessor Company reimbursed its majority
stockholder for travel expenses totaling $390,000 for the period
from April 1,
2003 to February 5, 2004.
|
13.
|
Share-Based
Compensation
|
In
connection with the Company’s initial public offering, the Board of Directors
adopted the 2005 Long-Term Equity Incentive Plan (“Plan”) which provides for the
grant, to a maximum of 5.0 million shares, of stock options, restricted
stock
units, deferred stock units and other equity-based awards. Directors,
officers
and other employees of the Company and its subsidiaries, as well
as others
performing services for the Company, are eligible for grants under
the Plan. The
Company believes that such awards better align the interests of its
employees
with those of its stockholders.
During
the year ended March 31, 2006, the Company adopted Statement No.
123(R) with the
initial grants of restricted stock and options to purchase common
stock to
employees and directors in accordance with the provisions of the
Plan.
Compensation costs charged against income, and the related tax benefits
recognized were $0.4 million and $0.2 million, respectively, for
the year ended
March 31, 2006.
Restricted
Shares
Restricted
shares granted under the plan generally vest in 3 to 5 years, contingent
on
attainment of Company performance goals, including both revenue and
earnings per
share growth targets. Certain restricted share awards provide for
accelerated
vesting if there is a change of control. The fair value of nonvested
restricted
shares is determined as the closing price of the Company’s common stock on the
day preceding the grant date. The weighted-average grant-date fair
value during
the year ended March 31, 2006 was $12.32.
Options
The
Plan
provides that the exercise price of the option granted shall be no
less than the
fair market value of the Company’s common stock on the date the option is
granted. Options granted have a term of no greater than 10 years
from the date
of grant and vest in accordance with a schedule determined at the
time the
option is granted, generally 3 to 5 years. Certain option awards
provide for
accelerated vesting if there is a change in control.
The
fair
value of each option award is estimated on the date of grant using
the
Black-Scholes Option Pricing Model (“Black-Scholes Model”) that uses the
assumptions noted in the following table. Expected volatilities are
based the
historical volatility of the Company’s common stock and other factors, including
the historical volatilities of comparable companies. The Company
uses
appropriate historical data, as well as current data, to estimate
option
exercise and employee termination behaviors. Employees that are expected
to
exhibit similar exercise or termination behaviors are grouped together
for the
purposes of valuation. The expected terms of the options granted
are derived
from management’s estimates and information derived from the public filings of
companies similar to the Company and represent the period of time
that options
granted are expected to be outstanding. The risk-free rate represents
the yield
on U.S. Treasury bonds with a maturity equal to the expected term
of the granted
option. The weighted-average grant-date fair value of the options
granted during
the year ended March 31, 2006 was $5.02.
|
Year
Ended
March
31, 2006
|
||
|
Expected
volatility
|
31.0%
|
|
|
Weighted-average
volatility
|
31.0%
|
|
|
Expected
dividends
|
--
|
|
|
Expected
term in years
|
6.0
|
|
|
Risk-free
rate
|
4.2%
|
F-31
A
summary
of option activity under the Plan as of March 31, 2006, and changes
during the
year then ended is as follows:
|
Options
|
Shares
(000)
|
Weighted-Average
Exercise
Price
|
Weighted-
Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
(000)
|
|||||||||
|
Granted
|
61.8
|
$
|
12.95
|
5.0
|
$
|
--
|
|||||||
|
Exercised
|
--
|
||||||||||||
|
Forfeited
or expired
|
--
|
||||||||||||
|
Outstanding
at March 31, 2006
|
61.8
|
$
|
12.95
|
4.3
|
$
|
--
|
|||||||
|
Exercisable
at March 31, 2006
|
--
|
$
|
--
|
--
|
$
|
--
|
|||||||
Since
the
exercise price of the option exceeded the Company’s average stock price of
$11.84 during the six months ended March 31, 2006, the aggregate
intrinsic value
of outstanding options was $0 at March 31, 2006.
A
summary
of the Company’s restricted shares granted under the Plan as of March 31, 2006,
and changes during the year then ended is presented below:
|
Nonvested
Shares
|
Shares
(000)
|
Weighted-Average
Grant-Date
Fair
Value
|
|||||
|
Granted
|
211.6
|
$
|
12.29
|
||||
|
Vested
|
(13.1
|
)
|
11.25
|
||||
|
Forfeited
|
(6.5
|
)
|
12.32
|
||||
|
Nonvested
at March 31, 2006
|
192.0
|
$
|
12.24
|
||||
The
fair
value of nonvested restricted shares is determined as the closing
price of the
Company’s common stock on the day preceding the grant date. The weighted-average
grant-date fair value during the year then ended was $12.32.
As
of
March 31, 2006, there was $1.2 million of total unrecognized compensation
cost
related to nonvested share-based compensation arrangements under
the Plan based
on management’s estimate of the shares that will ultimately vest. The Company
expects to recognize such costs over the next 4.3 years. However,
the restricted
shares vest upon the attainment of Company performance goals and
if such goals
are not met, no compensation costs would ultimately be recognized
and any
previously recognized compensation cost would be reversed. The total
fair value
of shares vested during the year ended March 31, 2006 was $0.1 million.
There
were no options exercised during the year ended March 31, 2006; hence
there were
no tax benefits realized during the period. At March 31, 2006, there
were 4.7
million shares available for issuance under the Plan.
F-32
14. Income
Taxes
The
provision (benefit) for income taxes consists of the following (in
thousands):
|
Year
Ended March 31
|
February
6, 2004 to
March
31
|
April
1,
2003
to
February
5,
|
|||||||||||
|
2006
|
2005
|
2004
|
2004
|
||||||||||
|
(Predecessor
Basis)
|
|||||||||||||
|
Current
|
|||||||||||||
|
Federal
|
$
|
5,043
|
$
|
(544
|
)
|
$
|
4
|
$
|
406
|
||||
|
State
|
1,056
|
654
|
24
|
90
|
|||||||||
|
Foreign
|
206
|
102
|
--
|
--
|
|||||||||
|
Deferred
|
|||||||||||||
|
Federal
|
10,621
|
7,495
|
662
|
1,620
|
|||||||||
|
State
|
4,355
|
849
|
34
|
98
|
|||||||||
|
$
|
21,281
|
$
|
8,556
|
$
|
724
|
$
|
2,214
|
||||||
The
principal components of the Company’s deferred tax balances are as follows (in
thousands):
|
March
31
|
|||||||
|
2006
|
2005
|
||||||
|
Deferred
Tax Assets
|
|||||||
|
Allowance
for doubtful accounts and sales returns
|
$
|
1,975
|
$
|
992
|
|||
|
Inventory
capitalization
|
524
|
359
|
|||||
|
Inventory
reserves
|
420
|
567
|
|||||
|
Net
operating loss carryforwards
|
2,402
|
7,990
|
|||||
|
Property
and equipment
|
325
|
50
|
|||||
|
State
income taxes
|
5,319
|
2,978
|
|||||
|
Accrued
liabilities
|
233
|
207
|
|||||
|
AMT
tax credit carryforwards
|
--
|
278
|
|||||
|
Other
|
168
|
430
|
|||||
|
Deferred
Tax Liabilities
|
|||||||
|
Intangible
assets
|
(106,342
|
)
|
(93,851
|
)
|
|||
|
Interest
rate caps
|
(400
|
)
|
(200
|
)
|
|||
|
$
|
(95,376
|
)
|
$
|
(80,200
|
)
|
||
At
March
31, 2006, Medtech and Denorex had net operating loss carryforwards
of
approximately $2.9 million and $3.0 million, respectfully, which
may be used to
offset future taxable income of the consolidated group and which
begin to expire
in 2020. The net operating loss carryforwards are subject to annual
limitations
as to usage under Internal Revenue Code Section 382 of approximately
$240,000
for Medtech and $677,000 for Denorex.
F-33
A
reconciliation of the effective tax rate compared to the statutory
U.S. Federal
tax rate is as follows (in
thousands):
|
Year
Ended March 31
|
February
6, 2004 to
March
31
|
April
1,
2003
to
February
5,
|
|||||||||||||||||||||||
|
2006
|
2005
|
2004
|
2004
|
||||||||||||||||||||||
|
(Predecessor
Basis)
|
|||||||||||||||||||||||||
|
%
|
%
|
%
|
%
|
||||||||||||||||||||||
|
Income
tax provision at statutory rate
|
$
|
16,645
|
35.0
|
$
|
6,384
|
34.0
|
$
|
664
|
34.0
|
$
|
1,822
|
34.0
|
|||||||||||||
|
Foreign
tax provision
|
59
|
0.1
|
102
|
.5
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
State
income taxes, net of federal income tax benefit
|
2,096
|
4.4
|
901
|
4.8
|
23
|
1.2
|
165
|
3.1
|
|||||||||||||||||
|
Increase
in net deferred tax liability resulting from an increase
in federal tax
rate to 35%
|
--
|
--
|
1,147
|
6.2
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
Increase
in net deferred tax liability resulting from an increase
in the effective
state tax rate
|
2,019
|
4.2
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
Amortization
of intangible assets
|
--
|
--
|
--
|
--
|
--
|
94
|
1.8
|
||||||||||||||||||
|
Goodwill
|
461
|
1.0
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
Valuation
allowance
|
--
|
--
|
--
|
--
|
--
|
--
|
321
|
5.9
|
|||||||||||||||||
|
Other
|
1
|
0.0
|
22
|
0.1
|
37
|
1.9
|
(188
|
)
|
(3.5
|
)
|
|||||||||||||||
|
Provision
for income taxes from continuing operations
|
$
|
21,281
|
44.7
|
$
|
8,556
|
45.6
|
$
|
724
|
37.1
|
$
|
2,214
|
41.3
|
|||||||||||||
In
June
2003, Dr. Jason Theodosakis filed a lawsuit, Theodosakis v. Walgreens,
et al.,
in the United States District Court in Arizona, alleging that two
of the
Company’s subsidiaries, Medtech Products, Inc. and Pecos Pharmaceutical,
Inc.,
as well as other unrelated parties, infringed the trade dress of
two of his
published books. Specifically, Dr. Theodosakis published “The Arthritis Cure”
and “Maximizing the Arthritis Cure” regarding the use of dietary supplements to
treat arthritis patients. Dr. Theodosakis alleged that his books
have a
distinctive trade dress, or cover layout, design, color and typeface,
and those
products that the defendants sold under the ARTHx trademarks infringed
the
books’ trade dress and constituted unfair competition and false designation
of
origin. Additionally, Dr. Theodosakis alleged that the defendants
made false
endorsements of the products by referencing his books on the product
packaging
and that the use of his name, books and trade dress invaded his right
to
publicity. The Company sold the ARTHx trademarks, goodwill and inventory
to a
third party, Contract Pharmacal Corporation, in March 2003. On January
12, 2005,
the court granted the Company’s motion for summary judgment and dismissed all
claims against Medtech Products and Pecos Pharmaceutical. The plaintiff
filed an
appeal in the U.S. Court of Appeals which was denied on March 28,
2006.
Subsequently, the plaintiff filed a petition for rehearing which
is
pending.
On
January 3, 2005, the Company was served with process by its former
lead counsel
in the Theodosakis litigation seeking $679,000 plus interest. The
case was filed
in the Supreme Court of New York in New York County and was styled
as Dickstein
Shapiro et al v. Medtech Products, Inc. In February 2005, the plaintiff
filed an
amended complaint naming Pecos Pharmaceutical as defendant. The Company
answered
and filed a counterclaim against Dickstein and also filed a third
party
complaint against the Lexington Insurance Company, the Company’s product
liability carrier. A mediation involving all parties was conducted
in March 2006
F-34
which
resulted in settlement of the litigation. Pursuant to the terms of
the
settlement, the Company paid $126,000 to the Dickstein firm.
The
Company and certain of its officers and directors are defendants
in a
consolidated putative securities class action lawsuit filed in the
United States
District Court for the Southern District of New York (the “Consolidated
Action”). The first of the six consolidated cases was filed on August 3,
2005.
Plaintiffs purport to represent a class of stockholders of the Company
who
purchased shares between February 9, 2005 through November 15, 2005.
Plaintiffs
also name as defendants the underwriters in the Company’s initial public
offering and a private equity fund that was a selling stockholder
in the
offering. The District Court has appointed a Lead Plaintiff. On December
23,
2005, the Lead Plaintiff filed a Consolidated Class Action Complaint,
which
asserts claims under Sections 11, 12(a)(2) and 15 of the Securities
Act of 1933
and Sections 10(b), 20(a), and 20A of the Securities Exchange Act
of 1934. The
Lead Plaintiff generally alleges that the Company issued a series
of materially
false and misleading statements in connection with its initial public
offering
and thereafter in regard to the following areas: the accounting issues
described
in the Company’s press release issued on or about November 15, 2005; and the
alleged failure to disclose that demand for certain of the Company’s products
was declining and that the Company was planning to withdraw several
products
from the market. Plaintiffs seek an unspecified amount of damages.
The Company
filed a motion to dismiss the Consolidated Class Action Complaint
in February
2006. Oral argument on the motion is expected in June 2006. The Company’s
management believes the allegations to be unfounded and will vigorously
pursue
its defenses; however the Company cannot reasonably estimate the
potential range
of loss, if any.
On
September 6, 2005, another putative securities class action lawsuit
substantially similar to the initially-filed complaints in the Consolidated
Action described above was filed against the same defendants in the
Circuit
Court of Cook County, Illinois (the “Chicago Action”). In light of the
first-filed Consolidated Action, proceedings in the Chicago Action
have been
stayed until a ruling on defendants’ anticipated motions to dismiss the
consolidated complaint in the Consolidated Action. The Company’s management
believes the allegations to be unfounded and will vigorously pursue
its
defenses; however the Company cannot reasonably estimate the potential
range of
loss, if any.
On
May
23, 2006, Similasan Corporation filed a lawsuit against the Company
in the
United States District Court for the District of Colorado in which
Similasan
alleged false designation of origin, trademark and trade dress infringement,
and
deceptive trade practices by the Company related to Murine
for
Allergy Eye Relief, Murine
for
Tired Eye Relief, and Murine
for
Earache Relief, as applicable. Similasan has requested injunctive
relief, an
accounting of profits and damages and litigation costs and attorneys’ fees. In
addition to the lawsuit filed by Similasan in the U.S. District Court
for the
District of Colorado, the Company recently received a cease and desist
letter
from Swiss legal counsel to Similasan and its parent company, Similasan
AG, a
Swiss company. In the cease and desist letter, Similasan and Similasan
AG have
alleged a breach of the Secrecy Agreement executed by the Company
and demanded
that the Company cease and desist from (i) using confidential information
covered by the Secrecy Agreement; and (ii) manufacturing, distributing,
marketing or selling certain of its homeopathic products. The Company’s
management believes the allegations to be without merit and intends
to
vigorously pursue its defenses; however, the Company cannot reasonably
estimate
the potential range of loss, if any.
The
Company is also involved from time to time in routine legal matters
and other
claims incidental to its business. The Company reviews outstanding
claims and
proceedings internally and with external counsel as necessary to
assess
probability of loss and for the ability to estimate loss. These assessments
are
re-evaluated each quarter or as new information becomes available
to determine
whether a reserve should be established or if any existing reserve
should be
adjusted. The actual cost of resolving a claim or proceeding ultimately
may be
substantially different than the amount of the recorded reserve.
In addition,
because it is not permissible under generally accepted accounting
principles to
establish a litigation reserve until the loss is both probable and
estimable, in
some cases there may be insufficient time to establish a reserve
prior to the
actual incurrence of the loss (upon verdict and judgment at trial,
for example,
or in the case of a quickly negotiated settlement). The Company believes
the
resolution of routine matters and other incidental claims, taking
into account
reserves and insurance, will not have a material adverse effect on
its business,
financial condition or results of operations.
F-35
Lease
Commitments
The
Company has operating leases for office facilities in New York, New
Jersey and
Wyoming, which expire at various dates through April 9, 2009.
The
following summarizes future minimum lease payments for the Company’s operating
leases:
|
Year
Ending March 31
|
||||
|
2007
|
$
|
665
|
||
|
2008
|
559
|
|||
|
2009
|
553
|
|||
|
2010
|
76
|
|||
|
$
|
1,853
|
|||
Rent
expense for 2006 and 2005 was $584,000 and $512,000 respectively.
Rent expense
totaled $62,000 for the period from February 6, 2004 to March 31,
2004 and
$357,000 for the period from April 1, 2003 to February 5, 2004 (predecessor
basis), net of rent income from subleases totaling $23,000 for the
period from
February 6, 2004 to March 31, 2004 (successor basis) and $96,000
for the period
from April 1, 2003 to February 5, 2004 (predecessor basis).
The
Company’s sales are concentrated in the areas of over-the-counter pharmaceutical
products, personal care products and household cleaning products.
The Company
sells its products to mass merchandisers, food and drug accounts,
and dollar and
club stores. During 2006 and 2005, and the periods from February 6, 2004 to
March 31, 2004, and April 1, 2003 to February 5, 2004,
approximately 61%, 64%, 66% and 74%, respectively, of the Company’s total sales
were derived from four of its brands. During 2006 and 2005, and the
periods
February 6, 2004 to March 31, 2004 and April 1, 2003 to
February 5, 2004, approximately 21%, 24%, 33%, and 30%, respectively, of
the Company’s net sales were made to one customer. At March 31, 2006,
approximately 22% of accounts receivable were owed by the same
customer.
The
Company manages product distribution in the continental United States
through a
main distribution center in St. Louis, Missouri. A serious disruption,
such as a
flood or fire, to the main distribution center could damage the Company’s
inventories and could materially impair the Company’s ability to distribute its
products to customers in a timely manner or at a reasonable cost.
The Company
could incur significantly higher costs and experience longer lead
times
associated with the distribution of its products to its customers
during the
time that it takes the Company to reopen or replace its distribution
center. As
a result, any such disruption could have a material adverse effect
on the
Company’s sales and profitability.
The
Company has relationships with over 40 third-party manufacturers.
Of those, the
top 10 manufacturers produce items that account for 81% of the Company’s gross
sales for 2006. The Company does not have long-term contracts with
the
manufacturers of products that account for approximately 34% of its
gross sales
for 2006. Not having manufacturing agreements for these products
exposes the
Company to the risk that the manufacturer could stop producing the
Company’s
products at any time, for any reason or fail to provide the Company
with the
level of products the Company needs to meet its customers’ demands. Without
adequate supplies of merchandise to sell to the Company’s customers, sales would
decrease materially and the Company’s business would suffer.
F-36
17. Business
Segments
Segment
information has been prepared in accordance with FASB Statement No.
131,
“Disclosures about Segments of an Enterprise and Related Information.” The
Company’s operating and reportable segments consist of (i) Over-the-Counter
Drugs, (ii) Personal Care and (iii) Household Cleaning.
There
were no inter-segment sales or transfers during 2006 and 2005 or
the periods
from April 1, 2003 to February 5, 2004 or February 6, 2004 to March
31, 2004.
The Company evaluates the performance of its operating segments and
allocates
resources to them based primarily on contribution margin. The table
below
summarizes information about the Company’s operating and reportable segments (in
thousands).
|
Year
Ended March 31, 2006
|
|||||||||||||
|
Over-the-Counter
|
Personal
|
Household
|
|||||||||||
|
Drug
|
Care
|
Cleaning
|
Consolidated
|
||||||||||
|
Net
sales
|
$
|
160,942
|
$
|
27,925
|
$
|
107,372
|
$
|
296,239
|
|||||
|
Other
revenues
|
--
|
--
|
429
|
429
|
|||||||||
|
Total
revenues
|
160,942
|
27,925
|
107,801
|
296,668
|
|||||||||
|
Cost
of sales
|
58,491
|
15,851
|
65,088
|
139,430
|
|||||||||
|
Gross
profit
|
102,451
|
12,074
|
42,713
|
157,238
|
|||||||||
|
Advertising
and promotion
|
22,424
|
3,163
|
6,495
|
32,082
|
|||||||||
|
Contribution
margin
|
$
|
80,027
|
$
|
8,911
|
$
|
36,218
|
125,156
|
||||||
|
Other
operating expenses
|
41,252
|
||||||||||||
|
Operating
income
|
83,904
|
||||||||||||
|
Other
(income) expense
|
36,346
|
||||||||||||
|
Provision
for income taxes
|
21,281
|
||||||||||||
|
Net
income
|
$
|
26,277
|
|||||||||||
|
Year
Ended March 31, 2005
|
|||||||||||||
|
Over-the-Counter
|
Personal
|
Household
|
|||||||||||
|
Drug
|
Care
|
Cleaning
|
Consolidated
|
||||||||||
|
Net
sales
|
$
|
159,010
|
$
|
32,162
|
$
|
97,746
|
$
|
288,918
|
|||||
|
Other
revenues
|
--
|
--
|
151
|
151
|
|||||||||
|
Total
revenues
|
159,010
|
32,162
|
97,897
|
289,069
|
|||||||||
|
Cost
of sales
|
60,570
|
16,400
|
62,039
|
139,009
|
|||||||||
|
Gross
profit
|
98,440
|
15,762
|
35,858
|
150,060
|
|||||||||
|
Advertising
and promotion
|
18,543
|
5,498
|
5,656
|
29,697
|
|||||||||
|
Contribution
margin
|
$
|
79,897
|
$
|
10,264
|
$
|
30,202
|
120,363
|
||||||
|
Other
operating expenses
|
29,998
|
||||||||||||
|
Operating
income
|
90,365
|
||||||||||||
|
Other
(income) expense
|
71,589
|
||||||||||||
|
Provision
for income taxes
|
8,556
|
||||||||||||
|
Net
income
|
$
|
10,220
|
|||||||||||
F-37
|
|
||||||||||||||||
|
Period
from February 6, 2004 to March 31,
2004
|
||||||||||||||||
|
|
Over-the-Counter
|
Personal
|
Household
|
|||||||||||||
|
Drug
|
Care
|
Cleaning
|
Other
|
Consolidated
|
||||||||||||
|
Net
sales
|
$
|
11,288
|
$
|
4,139
|
$
|
1,395
|
$
|
--
|
$
|
16,822
|
||||||
|
Other
revenues
|
--
|
--
|
--
|
54
|
54
|
|||||||||||
|
Total
revenues
|
11,288
|
4,139
|
1,395
|
54
|
16,876
|
|||||||||||
|
Cost
of sales
|
5,775
|
2,619
|
957
|
--
|
9,351
|
|||||||||||
|
Gross
profit
|
5,513
|
1,520
|
438
|
54
|
7,525
|
|||||||||||
|
Advertising
and promotion
|
711
|
510
|
46
|
--
|
1,267
|
|||||||||||
|
Contribution
margin
|
$
|
4,802
|
$
|
1,010
|
$
|
392
|
$
|
54
|
6,258
|
|||||||
|
Other
operating expenses
|
2,580
|
|||||||||||||||
|
Operating
income
|
3,678
|
|||||||||||||||
|
Other
(income) expense
|
1,725
|
|||||||||||||||
|
Provision
for income taxes
|
724
|
|||||||||||||||
|
Net
Income
|
$
|
1,229
|
||||||||||||||
|
Period
from April 1, 2003 to February 5, 2004
|
||||||||||||||||
|
Over-the-Counter
|
Personal
|
Household
|
||||||||||||||
|
Drug
|
Care
|
Cleaning
|
Other
|
Consolidated
|
||||||||||||
|
Net
sales
|
$
|
43,712
|
$
|
24,357
|
$
|
--
|
$ |
--
|
$
|
68,069
|
||||||
|
Other
revenues
|
--
|
--
|
--
|
333
|
333
|
|||||||||||
|
Total
revenues
|
43,712
|
24,357
|
--
|
333
|
68,402
|
|||||||||||
|
Cost
of sales
|
15,092
|
11,763
|
--
|
--
|
26,855
|
|||||||||||
|
Gross
profit
|
28,620
|
12,594
|
--
|
333
|
41,547
|
|||||||||||
|
Advertising
and promotion
|
5,214
|
4,847
|
--
|
--
|
10,061
|
|||||||||||
|
Contribution
margin
|
$
|
23,406
|
$
|
7,747
|
$
|
--
|
$
|
333
|
31,486
|
|||||||
|
Other
operating expenses
|
17,970
|
|||||||||||||||
|
Operating
income
|
13,516
|
|||||||||||||||
|
Other
(income) expense
|
8,157
|
|||||||||||||||
|
Provision
for income taxes
|
2,214
|
|||||||||||||||
|
Net
Income
|
$
|
3,145
|
||||||||||||||
During
each of 2006 and 2005, approximately 97% of the Company’s sales were made to
customers in the United States and Canada. During the periods from
April 1, 2003
to February 5, 2004 and February 6, 2004 to March 31, 2004, virtually
all sales
were made to customers in the United States and Canada. Other than
the United
States, no individual geographical area accounted for more than 10%
of net sales
in any of the periods presented. At March 31, 2006 and 2005, substantially
all
of the Company’s long-term assets were located in the United States of America
and have been allocated to the operating segments as follows:
F-38
|
Over-the-Counter
|
Personal
|
Household
|
|||||||||||
|
Drug
|
Care
|
Cleaning
|
Consolidated
|
||||||||||
|
Goodwill
|
$
|
222,635
|
$
|
2,751
|
$
|
72,549
|
$
|
297,935
|
|||||
|
Intangible
assets
|
|||||||||||||
|
Indefinite
lived
|
374,070
|
--
|
170,893
|
544,963
|
|||||||||
|
Finite
lived
|
71,888
|
20,313
|
33
|
92,234
|
|||||||||
|
445,958
|
20,313
|
170,926
|
637,197
|
||||||||||
|
$
|
668,593
|
$
|
23,064
|
$
|
243,475
|
$
|
935,132
|
||||||
18. Unaudited
Quarterly Financial Information
Unaudited
quarterly financial information for 2006 and 2005 is as follows:
Year
Ended March 31, 2006
|
Quarterly
Period Ended
|
|||||||||||||
|
(In
thousands, except for per
share
data)
|
June
30,
2005
|
September
30,
2005
|
December
31,
2005
|
March
31,
2006
|
|||||||||
|
Total
revenues
|
$
|
63,453
|
$
|
73,345
|
$
|
79,856
|
$
|
80,014
|
|||||
|
Cost
of sales
|
28,949
|
35,549
|
38,726
|
36,206
|
|||||||||
|
Gross
profit
|
34,504
|
37,796
|
41,130
|
43,808
|
|||||||||
|
Other
operating expenses
|
|||||||||||||
|
Advertising
and promotion
|
8,705
|
10,217
|
7,385
|
5,775
|
|||||||||
|
Depreciation
and amortization
|
2,631
|
2,635
|
2,834
|
2,694
|
|||||||||
|
General
and administrative
|
4,911
|
4,117
|
6,159
|
5,954
|
|||||||||
|
Interest
expense, net
|
8,510
|
8,671
|
9,526
|
9,639
|
|||||||||
|
Other
expenses (1)
|
--
|
--
|
--
|
9,317
|
|||||||||
|
24,757
|
25,640
|
25,904
|
33,379
|
||||||||||
|
Income
from operations
|
9,747
|
12,156
|
15,226
|
10,429
|
|||||||||
|
Provision
for income taxes
|
3,818
|
4,782
|
5,881
|
6,800
|
|||||||||
|
Net
income (loss)
|
$
|
5,929
|
$
|
7,374
|
$
|
9,345
|
$
|
3,629
|
|||||
|
Net
income per share:
|
|||||||||||||
|
Basic
|
$
|
0.12
|
$
|
0.15
|
$
|
0.19
|
$
|
0.07
|
|||||
|
Diluted
|
$
|
0.12
|
$
|
0.15
|
$
|
0.19
|
$
|
0.07
|
|||||
|
Weighted
Average Shares Outstanding:
|
|||||||||||||
|
Basic
|
48,722
|
48,791
|
48,929
|
49,077
|
|||||||||
|
Diluted
|
49,998
|
49,949
|
50,010
|
50,008
|
|||||||||
|
(1)
|
Consists
of a $7.4 million charge for the impairment of intangible
assets and a
$1.9 million charge for the impairment of
goodwill.
|
F-39
Year
Ended March 31, 2005
|
Quarterly
Period Ended
|
|||||||||||||
|
(In
thousands, except for pershare
data)
|
June
30,
2004
|
September
30,
2004
|
December
31,
2004
|
March
31,
2005
|
|||||||||
|
Total
revenues
|
$
|
58,755
|
$
|
79,958
|
$
|
73,043
|
$
|
77,313
|
|||||
|
Cost
of sales
|
33,138
|
37,941
|
33,241
|
34,689
|
|||||||||
|
Gross
profit
|
25,617
|
42,017
|
39,802
|
42,624
|
|||||||||
|
Other
operating expenses
|
|||||||||||||
|
Advertising
and promotion
|
10,785
|
8,449
|
5,168
|
5,295
|
|||||||||
|
Depreciation
and amortization
|
2,289
|
2,254
|
2,605
|
2,652
|
|||||||||
|
General
and administrative
|
4,921
|
4,502
|
5,690
|
5,085
|
|||||||||
|
Interest
expense, net
|
11,049
|
10,834
|
11,994
|
10,849
|
|||||||||
|
Other
expenses (2)
|
7,567
|
--
|
--
|
19,296
|
|||||||||
|
36,611
|
26,039
|
25,457
|
43,177
|
||||||||||
|
Income
(loss) from operations
|
(10,994
|
)
|
15,978
|
14,345
|
(553
|
)
|
|||||||
|
Provision
(benefit) for income taxes
|
(3,902
|
)
|
6,076
|
5,218
|
1,164
|
||||||||
|
Net
income (loss)
|
(7,092
|
)
|
9,902
|
9,127
|
(1,717
|
)
|
|||||||
|
Cumulative
preferred dividends on Senior Preferred and Class B Preferred
Units
|
(3,619
|
)
|
(3,827
|
)
|
(3,895
|
)
|
(14,054
|
)
|
|||||
|
Net
income (loss) available to common shareholders
|
$
|
(10,711
|
)
|
$
|
6,075
|
$
|
5,232
|
$
|
(15,771
|
)
|
|||
|
Net
income (loss) per share:
|
|||||||||||||
|
Basic
|
$
|
(0.44
|
)
|
$
|
0.25
|
$
|
0.21
|
$
|
(0.43
|
)
|
|||
|
Diluted
|
$
|
(0.44
|
)
|
$
|
0.23
|
$
|
0.20
|
$
|
(0.43
|
)
|
|||
|
Weighted
Average Shares Outstanding:
|
|||||||||||||
|
Basic
|
24,511
|
24,615
|
24,725
|
36,497
|
|||||||||
|
Diluted
|
24,511
|
26,512
|
26,613
|
36,497
|
|||||||||
(2) During
the quarter ended June 30, 2004, the Company recorded a $7.6 million
charge
related to the write-off of deferred financing costs and discount
on debt
associated with the borrowings retired in connection with the Medtech
Acquisition. During the quarter ended March 31, 2005, the Company
recorded a
$19.3 million charge related to the $184.0 million of debt retired
in connection
with its Initial Public Offering.
F-40
VALUATION
AND QUALIFYING ACCOUNTS
|
(In
Thousands)
|
Balance
at
Beginning
of
Period
|
Amounts
Charged
to
Expense
|
Deductions
|
Other
|
Balance
at
End
of
Period
|
||||||||||||||
|
Year
Ended March 31, 2006
|
|||||||||||||||||||
|
Reserves
for sales returns and allowance
|
$
|
1,652
|
$
|
23,748
|
$
|
23,732
|
$
|
232
|
(1
|
)
|
$
|
1,868
|
|||||||
|
Reserves
for trade promotions
|
1,493
|
2,481
|
2,522
|
137
|
(1
|
)
|
1,671
|
||||||||||||
|
Reserves
for consumer coupon redemptions
|
290
|
2,687
|
2,680
|
--
|
283
|
||||||||||||||
|
Allowance
for doubtful accounts
|
250
|
(1
|
)
|
92
|
59
|
(1
|
)
|
100
|
|||||||||||
|
Allowance
for inventory obsolescence
|
1,450
|
526
|
76
|
--
|
1,019
|
||||||||||||||
|
Deferred
tax valuation allowance
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||
|
Pecos
returns reserve
|
242
|
--
|
242
|
--
|
--
|
||||||||||||||
|
Year
Ended March 31, 2005
|
|||||||||||||||||||
|
Reserves
for sales returns and allowance
|
$
|
687
|
$
|
10,245
|
$
|
9,280
|
$
|
--
|
$
|
1,652
|
|||||||||
|
Reserves
for trade promotions
|
1,163
|
10,120
|
11,660
|
1,870
|
(2
|
)
|
1,493
|
||||||||||||
|
Reserves
for consumer coupon redemptions
|
266
|
2,265
|
2,891
|
670
|
(2
|
)
|
290
|
||||||||||||
|
Allowance
for doubtful accounts
|
60
|
32
|
33
|
191
|
(2
|
)
|
250
|
||||||||||||
|
Allowance
for inventory obsolescence
|
124
|
769
|
266
|
823
|
(2
|
)
|
1,450
|
||||||||||||
|
Deferred
tax valuation allowance
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||
|
Pecos
returns reserve
|
1,186
|
--
|
944
|
--
|
242
|
||||||||||||||
|
Period
from February 6, 2004 to March 31, 2004
|
|||||||||||||||||||
|
Reserves
for sales returns and allowance
|
$
|
652
|
$
|
315
|
$
|
568
|
$
|
288
|
(3
|
)
|
$
|
687
|
|||||||
|
Reserves
for trade promotions
|
1,943
|
213
|
1,542
|
549
|
(3
|
)
|
1,163
|
||||||||||||
|
Reserves
for consumer coupon redemptions
|
10
|
60
|
71
|
267
|
(3
|
)
|
266
|
||||||||||||
|
Allowance
for doubtful accounts
|
141
|
46
|
140
|
13
|
(3
|
)
|
60
|
||||||||||||
|
Allowance
for inventory obsolescence
|
88
|
70
|
60
|
26
|
(3
|
)
|
124
|
||||||||||||
|
Deferred
tax valuation allowance
|
1,744
|
--
|
--
|
(1,744
|
)
|
(4
|
)
|
--
|
|||||||||||
|
Pecos
returns reserve
|
1,349
|
--
|
163
|
--
|
1,186
|
||||||||||||||
F-41
SCHEDULE
II
VALUATION
AND QUALIFYING ACCOUNTS
(Continued)
|
Balance
at
Beginning
of
Period
|
Amounts
Charged
to
Expense
|
Deductions
|
Other
|
Balance
at
End
of
Period
|
||||||||||||
|
(In
Thousands)
|
||||||||||||||||
|
Period
from April 1, 2003 to February 5, 2004
|
||||||||||||||||
|
Reserves
for sales returns and allowance
|
$
|
222
|
$
|
3,348
|
$
|
3,025
|
$
|
--
|
$
|
545
|
||||||
|
Reserves
for trade promotions
|
2,228
|
3,241
|
3,526
|
--
|
1,943
|
|||||||||||
|
Reserves
for consumer coupon redemptions
|
62
|
473
|
525
|
--
|
10
|
|||||||||||
|
Allowance
for doubtful accounts
|
89
|
166
|
114
|
--
|
141
|
|||||||||||
|
Allowance
for inventory obsolescence
|
78
|
350
|
340
|
--
|
88
|
|||||||||||
|
Deferred
tax valuation allowance
|
1,419
|
325
|
--
|
--
|
1,744
|
|||||||||||
|
Pecos
returns reserve
|
4,104
|
--
|
2,755
|
--
|
1,349
|
|||||||||||
(1) As
a
result of the acquisition of Dental Concepts, LLC, the Company recorded
allowance for sales returns, promotional allowances and bad debts
in purchase
accounting.
(2) As
a
result of the acquisition of Bonita Bay and Vetco, the Company recorded
allowances for doubtful accounts and inventory obsolescence in purchase
accounting.
(3) As
a
result of the acquisition of Spic and Span, the Company recorded
reserves for
sales returns and allowances for doubtful accounts and inventory
obsolescence in
purchase accounting.
(4) As
a
result of the business combination of Medtech and Denorex, the Company
determined that it would probably be able to utilize the deferred
tax assets for
which a valuation allowance had previously been established. Accordingly,
the
Company did not record a valuation allowance in purchase
accounting.
F-42
Prestige
Brands International, LLC
Financial
Statements
March
31, 2006
F-43
Report
of
Independent Registered Public Accounting Firm
To
the
Board of Directors and Members
Prestige
Brands International, LLC:
We
have
completed an integrated audit of Prestige Brands International, LLC’s 2006
consolidated financial statements and of its internal control over
financial
reporting as of March 31, 2006 and audits of its 2005 and 2004 consolidated
financial statements in accordance with the standards of the Public
Company
Accounting Oversight Board (United States). Our opinions, based on
our audits,
are presented below.
Consolidated
financial statements and financial statement schedule
In
our
opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of members’ equity and comprehensive
income and of cash flows present fairly, in all material respects,
the financial
position of Prestige Brands International, LLC and its subsidiaries
at March 31,
2006 and 2005 (successor basis), and the results of their operations
and their
cash flows for each of the two years in the period ended March 31,
2006 and for
the period from February 6, 2004 to March 31, 2004 (successor basis)
in
conformity with accounting principles generally accepted in the United
States of
America. In addition, in our opinion, the financial statement schedule
listed in
the index appearing under Item 15(a)(2) presents
fairly, in all material respects, the information set forth therein
when read in
conjunction with the related consolidated financial statements. These
financial
statements and financial statement schedule are the responsibility
of the
Company’s management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our
audits. We
conducted our audits of these statements in accordance with the standards
of the
Public Company Accounting Oversight Board (United States). Those
standards
require that we plan and perform the audit to obtain reasonable assurance
about
whether the financial statements are free of material misstatement.
An audit of
financial statements includes examining, on a test basis, evidence
supporting
the amounts and disclosures in the financial statements, assessing
the
accounting principles used and significant estimates made by management,
and
evaluating the overall financial statement presentation. We believe
that our
audits provide a reasonable basis for our opinion.
Internal
control over financial reporting
Also,
in
our opinion, management’s assessment, included in Management’s Annual Report on
Internal Control over Financial Reporting appearing under Item 9A,
that the
Company maintained effective internal control over financial reporting
as of
March 31, 2006 based on criteria established in Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations (“COSO”) of the Treadway
Commission, is fairly stated, in all material respects, based on
those criteria.
Furthermore, in our opinion, the Company maintained, in all material
respects,
effective internal control over financial reporting as of March 31,
2006, based
on criteria established in Internal
Control - Integrated Framework
issued
by COSO. The Company’s management is responsible for maintaining effective
internal control over financial reporting and for its assessment
of the
effectiveness of internal control over financial reporting. Our responsibility
is to express opinions on management’s assessment and on the effectiveness
of the Company’s internal control over financial reporting based on our audit.
We conducted our audit of internal control over financial reporting
in
accordance with the standards of the Public Company Accounting Oversight
Board
(United States). Those standards require that we plan and perform
the audit to
obtain reasonable assurance about whether effective internal control
over
financial reporting was maintained in all material respects. An audit
of
internal control over financial reporting includes obtaining an understanding
of
internal control over financial reporting, evaluating management’s assessment,
testing and evaluating the design and operating effectiveness of
internal
control, and performing such other procedures as we consider necessary
in the
circumstances. We believe that our audit provides a reasonable basis
for our
opinions.
F-44
A
company’s internal control over financial reporting is a process designed
to
provide reasonable assurance regarding the reliability of financial
reporting
and the preparation of financial statements for external purposes
in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately
and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with
generally accepted accounting principles, and that receipts and expenditures
of
the company are being made only in accordance with authorizations
of management
and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition,
use or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting
may not
prevent or detect misstatements. Also, projections of any evaluation
of
effectiveness to future periods are subject to the risk that controls
may become
inadequate because of changes in conditions, or that the degree of
compliance
with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
Salt
Lake
City, Utah
June
10,
2006
F-45
Report
of
Independent Registered Public Accounting Firm
To
the
Board of Directors and Stockholders
Medtech
Holdings, Inc. and The Denorex Company
In
our
opinion, the accompanying combined statements of operations, of stockholders'
equity, and of cash flows present fairly, in all material respects,
the results
of operations and cash flows of Medtech Holdings, Inc. and The Denorex
Company (the "Company") for the period from April 1, 2003 to
February 5, 2004 (predecessor basis) in conformity with accounting
principles generally accepted in the United States of America. In
addition, in
our opinion, the financial statement schedule listed in the index
appearing on
page F-1 presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related financial
statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is
to express an
opinion on these financial statements and financial statement schedule
based on
our audits. We conducted our audits of these statements in accordance
with the
standards of the Public Company Accounting Oversight Board (United
States).
Those standards require that we plan and perform the audit to obtain
reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting
the amounts and disclosures in the financial statements, assessing
the
accounting principles used and significant estimates made by management,
and
evaluating the overall financial statement presentation. We believe
that our
audit provides a reasonable basis for our opinion.
/s/
PricewaterhouseCoopers LLP
Salt
Lake
City, Utah
June
10,
2006
F-46
Prestige
Brands International, LLC
Consolidated
Statements of Operations
|
Year
Ended March 31
|
February
6, 2004 to March 31,
|
April
1, 2003 to February 5,
|
|||||||||||
|
(In
thousands)
|
2006
|
2005
|
2004
|
2004
|
|||||||||
|
(Successor
Basis)
|
(Successor
Basis)
|
(Predecessor
Basis)
|
|||||||||||
|
Revenues
|
|||||||||||||
|
Net
sales
|
$
|
296,239
|
$
|
288,918
|
$
|
16,822
|
$
|
68,069
|
|||||
|
Other
revenues
|
429
|
151
|
--
|
--
|
|||||||||
|
Other
revenues - related parties
|
--
|
--
|
54
|
333
|
|||||||||
|
Total
revenues
|
296,668
|
289,069
|
16,876
|
68,402
|
|||||||||
|
Cost
of Sales
|
|||||||||||||
|
Cost
of sales
|
139,430
|
139,009
|
9,351
|
26,855
|
|||||||||
|
Gross
profit
|
157,238
|
150,060
|
7,525
|
41,547
|
|||||||||
|
Operating
Expenses
|
|||||||||||||
|
Advertising
and promotion
|
32,082
|
29,697
|
1,267
|
10,061
|
|||||||||
|
General
and administrative
|
21,158
|
20,198
|
1,649
|
12,068
|
|||||||||
|
Depreciation
|
1,736
|
1,899
|
41
|
247
|
|||||||||
|
Amortization
of intangible assets
|
9,041
|
7,901
|
890
|
4,251
|
|||||||||
|
Forgiveness
of related party receivable
|
--
|
--
|
--
|
1,404
|
|||||||||
|
Impairment
of goodwill
|
1,892
|
--
|
--
|
--
|
|||||||||
|
Impairment
of intangible assets
|
7,425
|
--
|
--
|
--
|
|||||||||
|
Total
operating expenses
|
73,334
|
59,695
|
3,847
|
28,031
|
|||||||||
|
Operating
income
|
83,904
|
90,365
|
3,678
|
13,516
|
|||||||||
|
Other
income (expense)
|
|||||||||||||
|
Interest
income
|
568
|
371
|
10
|
38
|
|||||||||
|
Interest
expense
|
(36,914
|
)
|
(45,097
|
)
|
(1,735
|
)
|
(8,195
|
)
|
|||||
|
Loss
on disposal of equipment
|
--
|
(9
|
)
|
--
|
--
|
||||||||
|
Loss
on extinguishment of debt
|
--
|
(26,854
|
)
|
--
|
--
|
||||||||
|
Total
other income (expense)
|
(36,346
|
)
|
(71,589
|
)
|
(1,725
|
)
|
(8,157
|
)
|
|||||
|
Income
before income taxes
|
47,558
|
18,776
|
1,953
|
5,359
|
|||||||||
|
Provision
for income taxes
|
(21,281
|
)
|
(8,556
|
)
|
(724
|
)
|
(2,214
|
)
|
|||||
|
Net
income
|
$
|
26,277
|
$
|
10,220
|
$
|
1,229
|
$
|
3,145
|
|||||
See
accompanying notes.
F-47
Prestige
Brands International, LLC
Consolidated
Balance Sheets
(In
thousands)
|
Assets
|
March
31, 2006
|
March
31, 2005
|
|||||
|
Current
assets
|
(Successor
Basis)
|
||||||
|
Cash
and cash equivalents
|
$
|
8,200
|
$
|
5,334
|
|||
|
Accounts
receivable
|
40,042
|
35,918
|
|||||
|
Inventories
|
33,841
|
24,833
|
|||||
|
Deferred
income tax assets
|
3,227
|
5,699
|
|||||
|
Prepaid
expenses and other current assets
|
701
|
3,152
|
|||||
|
Total
current assets
|
86,011
|
74,936
|
|||||
|
Property
and equipment
|
1,653
|
2,324
|
|||||
|
Goodwill
|
297,935
|
294,731
|
|||||
|
Intangible
assets
|
637,197
|
608,613
|
|||||
|
Other
long-term assets
|
15,849
|
15,996
|
|||||
|
Total
Assets
|
$
|
1,038,645
|
$
|
996,600
|
|||
|
Liabilities
and Members’ Equity
|
|||||||
|
Current
liabilities
|
|||||||
|
Accounts
payable
|
$
|
18,065
|
$
|
21,705
|
|||
|
Accrued
interest payable
|
7,563
|
7,060
|
|||||
|
Income
taxes payable
|
1,795
|
--
|
|||||
|
Other
accrued liabilities
|
4,582
|
4,529
|
|||||
|
Current
portion of long-term debt
|
3,730
|
3,730
|
|||||
|
Total
current liabilities
|
35,735
|
37,024
|
|||||
|
Long-term
debt
|
494,900
|
491,630
|
|||||
|
Deferred
income tax liabilities
|
98,603
|
85,899
|
|||||
|
Total
Liabilities
|
629,238
|
614,553
|
|||||
|
Commitments
and Contingencies - Note 14
|
|||||||
|
Members’
Equity
|
|||||||
|
Contributed
capital - Prestige Holdings
|
370,572
|
370,278
|
|||||
|
Accumulated
other comprehensive income
|
1,109
|
320
|
|||||
|
Retained
earnings
|
37,726
|
11,449
|
|||||
|
Total
members’ equity
|
409,407
|
382,047
|
|||||
|
Total
Liabilities and Members’ Equity
|
$
|
1,038,645
|
$
|
996,600
|
|||
See
accompanying notes.
F-48
Prestige
Brands International, LLC
Consolidated
Statement of Changes in Members’ Equity
and
Comprehensive Income
Years
Ended March 31, 2006
|
Medtech
Common
Stock
|
Denorex
Common
Stock
|
Prestige
Contributed
|
Additional
Paid-in
|
||||||||||||||||
|
(In
Thousands)
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Capital
|
|||||||||||||
|
Predecessor
Basis
|
|||||||||||||||||||
|
Balance
at March 31, 2003
|
7,145
|
$
|
71
|
125
|
$
|
1
|
$
|
--
|
$
|
56,792
|
|||||||||
|
Amortization
of deferred compensation
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||
|
Contribution
of capital
|
--
|
--
|
--
|
--
|
--
|
2,629
|
|||||||||||||
|
Components
of comprehensive income
|
|||||||||||||||||||
|
Net
income
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||
|
Unrealized
gain on interest rate swap net of income tax expense of
$148
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||
|
Total
comprehensive income
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||
|
Balance
at February 5, 2004
|
7,145
|
71
|
125
|
1
|
--
|
59,421
|
|||||||||||||
|
Successor
Basis
|
|||||||||||||||||||
|
Cash
contribution of capital related to the Medtech Acquisition,
net of
offering costs
|
--
|
--
|
--
|
--
|
100,371
|
--
|
|||||||||||||
|
Issuance
of Units in conjunction with Medtech Acquisition
|
--
|
--
|
--
|
--
|
1,709
|
--
|
|||||||||||||
|
Adjustments
related to Medtech Acquisition
|
(7,145
|
)
|
(71
|
)
|
(125
|
)
|
(1
|
)
|
--
|
(59,421
|
)
|
||||||||
|
Issuance
of Units in conjunction with Spic and Span Acquisition
|
--
|
--
|
--
|
--
|
17,768
|
--
|
|||||||||||||
|
Issuance
of Warrants in connection with Medtech Acquisition
|
--
|
--
|
--
|
--
|
4,871
|
--
|
|||||||||||||
|
Net
income and comprehensive income
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||
|
Balance
at March 31, 2004
|
--
|
$
|
--
|
--
|
$
|
--
|
$
|
124,719
|
$
|
--
|
|||||||||
See
accompanying notes.
F-49
Prestige
Brands International, LLC
Consolidated
Statement of Changes in Members’ Equity
and
Comprehensive Income
Years
Ended March 31, 2006
(Continued)
|
(In
Thousands)
|
Deferred
Compensation
|
Medtech
Treasury
Stock
|
Accumulated
Other
Comprehensive
Income/
(Loss)
|
Retained
Earnings
(Accumulated
Deficit)
|
Total
|
|||||||||||
|
Balance
at March 31, 2003
|
$
|
(140
|
)
|
$
|
(2
|
)
|
$
|
(549
|
)
|
$
|
(12,314
|
)
|
$
|
43,859
|
||
|
Amortization
of deferred compensation
|
67
|
--
|
--
|
--
|
67
|
|||||||||||
|
Contribution
of capital
|
--
|
--
|
--
|
--
|
2,629
|
|||||||||||
|
Components
of comprehensive income
|
||||||||||||||||
|
Net
income
|
--
|
--
|
--
|
3,145
|
3,145
|
|||||||||||
|
Unrealized
gain on interest rate swap net of income tax expense of
$148
|
--
|
--
|
423
|
--
|
423
|
|||||||||||
|
Total
comprehensive income
|
--
|
--
|
--
|
--
|
3,568
|
|||||||||||
|
Balance
at February 5, 2004
|
(73
|
)
|
(2
|
)
|
(126
|
)
|
(9,169
|
)
|
50,123
|
|||||||
|
Successor
Basis
|
||||||||||||||||
|
Cash
contribution of capital related to the Medtech Acquisition,
net of
offering costs
|
--
|
--
|
--
|
--
|
100,371
|
|||||||||||
|
Issuance
of Units in conjunction with Medtech Acquisition
|
--
|
--
|
--
|
--
|
1,709
|
|||||||||||
|
Adjustments
related to Medtech Acquisition
|
73
|
2
|
126
|
9,169
|
(50,123
|
)
|
||||||||||
|
Issuance
of Units in conjunction with Spic and Span Acquisition
|
--
|
--
|
--
|
--
|
17,768
|
|||||||||||
|
Issuance
of Warrants in connection with Medtech Acquisition
|
--
|
--
|
--
|
--
|
4,871
|
|||||||||||
|
Net
income and comprehensive income
|
--
|
--
|
--
|
1,229
|
1,229
|
|||||||||||
|
Balance
at March 31, 2004
|
$
|
--
|
$
|
--
|
$
|
--
|
$
|
1,229
|
$
|
125,948
|
||||||
See
accompanying notes.
F-50
Prestige
Brands International, LLC
Consolidated
Statement of Changes in Members’ Equity
and
Comprehensive Income
Years
Ended March 31, 2006
(Continued)
|
(In
Thousands)
|
Prestige
Contributed
Capital
|
Accumulated
Other
Comprehensive
Income/(Loss)
|
Retained
Earnings
|
Total
|
|||||||||
|
|
|
|
|
||||||||||
|
Balance
at March 31, 2004
|
$
|
124,719
|
$
|
--
|
$
|
1,229
|
$
|
125,948
|
|||||
|
Contribution
of capital from parent
|
245,559
|
--
|
--
|
245,559
|
|||||||||
|
Components
of comprehensive income:
|
|||||||||||||
|
Net
income
|
--
|
--
|
10,220
|
10,220
|
|||||||||
|
Unrealized
gain on interest rate caps net of income tax expense of
$200
|
--
|
320
|
--
|
320
|
|||||||||
|
Total
comprehensive income
|
--
|
--
|
--
|
10,540
|
|||||||||
|
Balance
at March 31, 2005
|
370,278
|
320
|
11,449
|
382,047
|
|||||||||
|
Additional
costs associated with capital contributions from Prestige
Brands
Holdings
|
(63
|
)
|
--
|
--
|
(63
|
)
|
|||||||
|
Capital
contributions from Prestige Brands Holdings in connection
with
compensation of officers and directors
|
383
|
--
|
--
|
383
|
|||||||||
|
Repurchase
of equity units
|
(26
|
)
|
--
|
--
|
(26
|
)
|
|||||||
|
Components
of comprehensive income
|
|||||||||||||
|
Net
income for the period
|
--
|
--
|
26,277
|
26,277
|
|||||||||
|
Unrealized
loss on interest rate cap, net of tax benefit of $400
|
--
|
789
|
--
|
789
|
|||||||||
|
Total
comprehensive income
|
--
|
--
|
--
|
27,066
|
|||||||||
|
Balance
at March 31, 2006
|
$
|
370,572
|
$
|
1,109
|
$
|
37,726
|
$
|
409,407
|
|||||
See
accompanying notes.
F-51
Prestige
Brands International, LLC
Consolidated
Statements of Cash Flows
|
Year
Ended March 31
|
February
6, 2004
to
March 31,
|
April
1, 2003
to
February 5,
|
|||||||||||
|
(In
thousands)
|
2006
|
2005
|
2004
|
2004
|
|||||||||
|
(Successor
Basis)
|
(Successor
Basis)
|
(Predecessor
Basis)
|
|||||||||||
|
Operating
Activities
|
|||||||||||||
|
Net
income
|
$26,277
|
$10,220
|
$1,229
|
$3,145
|
|||||||||
|
Adjustments
to reconcile net income to net cash provided by (used for)
operating
activities:
|
|||||||||||||
|
Depreciation
and amortization
|
10,777
|
9,800
|
931
|
4,498
|
|||||||||
|
Amortization
of deferred financing costs
|
2,649
|
2,943
|
134
|
1,271
|
|||||||||
|
Impairment
of goodwill and intangible assets
|
9,317
|
--
|
--
|
--
|
|||||||||
|
Deferred
income taxes
|
14,976
|
8,344
|
696
|
1,718
|
|||||||||
|
Stock-based
compensation
|
383
|
--
|
--
|
67
|
|||||||||
|
Loss
on extinguishment of debt
|
--
|
26,854
|
--
|
--
|
|||||||||
|
Other
|
--
|
9
|
71
|
376
|
|||||||||
|
Changes
in operating assets and liabilities, net of effects of
purchases of
businesses
|
|||||||||||||
|
Accounts
receivable
|
(1,350)
|
(7,227)
|
(898)
|
1,069
|
|||||||||
|
Inventories
|
(7,156)
|
2,922
|
207
|
(1,712)
|
|||||||||
|
Prepaid
expenses and other assets
|
2,623
|
(1,490)
|
(52)
|
259
|
|||||||||
|
Accounts
payable
|
(6,037)
|
5,059
|
574
|
(1,373)
|
|||||||||
|
Income
taxes payable
|
1,795
|
--
|
(326)
|
336
|
|||||||||
|
Accrued
liabilities
|
(393)
|
(6,392)
|
(4,272)
|
(1,811)
|
|||||||||
|
Net
cash provided by (used for) operating activities
|
53,861
|
51,042
|
(1,706)
|
7,843
|
|||||||||
|
Investing
Activities
|
|||||||||||||
|
Purchases
of equipment
|
(519)
|
(365)
|
(42)
|
(66)
|
|||||||||
|
Purchases
of intangibles
|
(22,655)
|
--
|
--
|
(510)
|
|||||||||
|
Restricted
funds
|
--
|
--
|
700
|
--
|
|||||||||
|
Purchases
of businesses, net
|
(30,989)
|
(425,479)
|
(167,532)
|
--
|
|||||||||
|
Net
cash used for (used for) investing activities
|
(54,163)
|
425,844)
|
(166,874)
|
(576)
|
|||||||||
|
Financing
Activities
|
|||||||||||||
|
Proceeds
from the issuance of notes
|
30,000
|
698,512
|
154,786
|
13,539
|
|||||||||
|
Payment
of deferred financing costs
|
(13)
|
(24,539)
|
(2,841)
|
(115)
|
|||||||||
|
Repayment
of notes
|
(26,730)
|
(529,538)
|
(80,146)
|
(24,682)
|
|||||||||
|
Prepayment
penalty
|
--
|
(10,875)
|
--
|
--
|
|||||||||
|
Payment
on interest rate caps
|
--
|
(2,283)
|
(197)
|
--
|
|||||||||
|
Proceeds
from the issuance of equity, net
|
(63)
|
475,554
|
100,371
|
2,629
|
|||||||||
|
Redemption
of equity interests
|
(26
|
)
|
(230,088
|
)
|
--
|
--
|
|||||||
|
Net
cash provided by (used for) financing activities
|
3,168
|
376,743
|
171,973
|
(8,629
|
)
|
||||||||
|
Increase
(decrease) in cash
|
2,866
|
1,941
|
3,393
|
(1,362
|
)
|
||||||||
|
Cash
- beginning of period
|
5,334
|
3,393
|
--
|
3,530
|
|||||||||
|
Cash
- end of period
|
$
|
8,200
|
$
|
5,334
|
$
|
3,393
|
$
|
2,168
|
|||||
See
accompanying notes.
F-52
Prestige
Brands International, LLC
Consolidated
Statements of Cash Flows
|
Year
Ended March 31
|
February
6, 2004
to
March 31,
|
April
1, 2003
to
February 5,
|
|||||||||||
|
2006
|
2005
|
2004
|
2004
|
||||||||||
|
(Successor
Basis)
|
(Successor
Basis)
|
(Predecessor
Basis)
|
|||||||||||
|
Supplemental
Cash Flow Information
|
|||||||||||||
|
Purchases
of Businesses
|
|||||||||||||
|
Fair
value of assets acquired, net of cash acquired
|
$
|
34,335
|
$
|
655,542
|
$
|
318,380
|
$
|
--
|
|||||
|
Fair
value of liabilities assumed
|
(3,346
|
)
|
(229,971
|
)
|
(131,371
|
)
|
--
|
||||||
|
Purchase
price funded with non-cash contributions
|
--
|
(92
|
)
|
(19,477
|
)
|
--
|
|||||||
|
Cash
paid to purchase businesses
|
$
|
30,989
|
$
|
425,479
|
$
|
167,532
|
$
|
--
|
|||||
|
Interest
paid
|
$
|
33,760
|
$
|
42,155
|
$
|
2,357
|
$
|
5,491
|
|||||
|
Income
taxes paid (refunded)
|
$
|
2,852
|
$
|
2,689
|
$
|
(31
|
)
|
$
|
159
|
||||
See
accompanying notes.
F-53
Prestige
Brands International, LLC
Notes
to Consolidated Financial Statements
|
1.
|
Business
and Basis of Presentation
|
Nature of Business
Prestige
Brands International, LLC (“Prestige International” or the “Company”) is an
indirect wholly-owned subsidiary of Prestige Brands Holdings, Inc.
(“Prestige
Holdings”) and the indirect parent company of Prestige Brands, Inc., the issuer
of the 9.25% senior subordinated notes due 2012 (“Senior Notes”) and the
borrower under the senior credit facility consisting of a Revolving
Credit
Facility, Tranche B Term Loan Facility and a Tranche C Term Loan
Facility
(together the “Senior Credit Facility”). Prestige International is a holding
company with no assets or operations and is also the parent guarantor
of the
Senior Notes and Senior Credit Facility. Prestige Holdings through
its
subsidiaries, is engaged in the marketing, sales and distribution
of
over-the-counter drug, personal care and household cleaning brands
to mass
merchandisers, drug stores, supermarkets and club stores primarily
in the United
States.
On
February 6, 2004, Prestige International Holdings, LLC (“Prestige LLC”), through
two indirect wholly-owned subsidiaries, acquired all of the outstanding
capital
stock of Medtech Holdings, Inc. (“Medtech”) and The Denorex Company (“Denorex”)
(collectively the “Predecessor Company”) (the “Medtech Acquisition”). On March
5, 2004, Prestige LLC, through an indirect wholly-owned subsidiary,
acquired all
of the outstanding capital stock of The Spic and Span Company (“Spic and Span”)
(the “Spic and Span Acquisition”). On April 6, 2004, Prestige LLC, through an
indirect wholly-owned subsidiary, acquired all of the outstanding
capital stock
of Bonita Bay Holdings, Inc. (“Bonita Bay”) (the “Bonita Bay Acquisition”). On
October 6, 2004, Prestige LLC acquired, through an indirect wholly-owned
subsidiary, all of the outstanding capital stock of Vetco, Inc. (“Vetco”) (the
“Vetco Acquisition”). On February 9, 2005, Prestige Holdings became the direct
parent company of Prestige LLC under the terms of an exchange agreement
among
Prestige Holdings, Prestige LLC and each holder of common units of
Prestige LLC.
Prestige LLC was controlled by affiliates of GTCR Golder Rauner II,
LLC.
Pursuant to the exchange agreement, the holders of common units of
Prestige LLC
exchanged all of their common units for an aggregate of 26.7 million
shares of
common stock of Prestige Holdings. On November 8, 2005, the Company,
through a
wholly-owned subsidiary, acquired Dental Concepts, LLC (“Dental
Concepts”).
Fiscal
Year
The
Company’s fiscal year ends on March 31st
of each
year. References in these financial statements or notes to a year
(e.g., “2005”)
means the Company’s fiscal year ended on March 31st
of that
year.
Basis
of Presentation
The
Medtech Acquisition was accounted for as a purchase transaction.
For financial
reporting purposes, Medtech and Denorex, which were under common
control and
management, are considered the predecessor entities. Accordingly,
the results of
operations and cash flows for the period from April 1, 2003 to February
5, 2004,
represent the combined historical financial statements of Medtech
and its
subsidiaries and Denorex (“predecessor basis”). The balance sheets of the
Company at March 31, 2006 and 2005, and the results of operations
and cash flows
for the years ended March 31, 2006 and 2005, and for the period from
February 6,
2004 to March 31, 2004, reflect those purchase accounting adjustments
resulting
from the Medtech Acquisition (“successor basis”). The Spic and Span, Bonita Bay,
Vetco and Dental Concepts Acquisitions were also accounted for as
purchase
transactions. The results of operations and cash flows for Spic and
Span, Bonita
Bay, Vetco and Dental Concepts have been reflected in the Company’s consolidated
statements of operations and cash flows beginning from their respective
acquisition dates. The formation of Prestige Holdings and exchange
of common
units for common shares was accounted for as a reorganization of
entities under
common control. As a result, there was no adjustment to the carrying
value of
the assets and liabilities. All significant intercompany transactions
and
balances have been eliminated.
Use
of Estimates
The
preparation of financial statements in conformity with accounting
principles
generally accepted in the United States of America requires management
to make
estimates and assumptions that affect the reported amounts of assets
and
liabilities and disclosure of contingent assets and liabilities at
the date of
the financial statements, as well as the reported amounts of
F-54
revenues
and expenses during the reporting period. Although these estimates
are based on
the Company’s knowledge of current events and actions that the Company may
undertake in the future, actual results could differ from those
estimates.
Cash
and Cash Equivalents
The
Company considers all short-term deposits and investments with original
maturities of three months or less to be cash equivalents. Substantially
all of
the Company’s cash is held by one bank located in Wyoming. The Company does not
believe that, as a result of this concentration, it is subject to
any unusual
financial risk beyond the normal risk associated with commercial
banking
relationships.
Accounts
Receivable
The
Company extends non-interest bearing trade credit to its customers
in the
ordinary course of business. The Company maintains an allowance for
doubtful
accounts receivable based upon historical collection experience and
expected
collectibility of the accounts receivable. In
an
effort to reduce credit risk, the Company (i) has established credit
limits for
all of its customer relationships, (ii) performs ongoing credit evaluations
of
customers’ financial condition, (iii) monitors the payment history and aging
of
customers’ receivables, and (iv) monitors open orders against an individual
customer’s outstanding receivable balance.
Inventories
Inventories
are stated at the lower of cost or fair value, where cost is determined
by using
the first-in, first-out method. Additionally, the Company provides
an allowance
for slow moving and obsolete inventory, whereby it reduces
inventories for the diminution of value resulting from product obsolescence,
damage, or other issues affecting marketability equal to the difference
between
the cost of the inventory and its estimated market value. Factors
utilized in
the determination of estimated market value include (i) current sales
data and
historical return rates, (ii) estimates of future demand, (iii) competitive
pricing pressures, (iv) new product introductions, (v) product expiration
dates,
and (vi) component and packaging obsolescence.
Property
and Equipment
Property
and equipment are stated at cost and are depreciated using the straight-line
method based on the following estimated useful lives:
|
Years
|
||
|
Machinery
|
5
|
|
|
Computer
equipment
|
3
|
|
|
Furniture
and fixtures
|
7
|
|
|
Leasehold
improvements
|
5
|
Expenditures
for maintenance and repairs are charged to expense as incurred. When
an asset is
sold or otherwise disposed of, the cost and associated accumulated
depreciation
are removed from the accounts and the resulting gain or loss is recognized
in
the consolidated statement of operations.
Property
and equipment are reviewed for impairment whenever events or changes
in
circumstances indicate that the carrying amount of such assets may
not be
recoverable. An impairment loss is recognized if the carrying amount
of the
asset exceeds its fair value.
Goodwill
The
excess of the purchase price over the fair market value of assets
acquired and
liabilities assumed in purchase business combinations is classified
as goodwill.
In accordance with Financial Accounting Standards Board (“FASB”) Statement of
Financial Accounting Standards (“Statement”) No. 142, “Goodwill and Other
Intangible Assets,” the Company does not amortize goodwill, but performs
impairment tests of the carrying value at least annually. The Company
tests
goodwill for impairment at the “brand” level which is one level below the
operating segment level.
Intangible
Assets
Intangible
assets are stated at cost less accumulated amortization. For intangible
assets
with finite lives, amortization is computed on the straight-line
method over
estimated useful lives ranging from five to 30 years.
F-55
Indefinite
lived intangible assets are tested for impairment at least annually,
while
intangible assets with finite lives are reviewed for impairment whenever
events
or changes in circumstances indicate that the carrying amount of
such assets may
not be recoverable. An impairment loss is recognized if the carrying
amount of
the asset exceeds its fair value.
Deferred
Financing Costs
The
Company has incurred debt issuance costs in connection with its long-term
debt.
These costs are capitalized as deferred financing costs and amortized
using the
effective interest method over the term of the related debt.
Revenue
Recognition
Revenues
are recognized in accordance with Securities and Exchange Commission
Staff
Accounting Bulletin 104, “Revenue Recognition,” when the following criteria are
met: (1) persuasive evidence of an arrangement exists; (2) the product
has been
shipped and the customer takes ownership and assumes risk of loss;
(3) the
selling price is fixed or determinable; and (4) collection of the
resulting
receivable is reasonably assured. The Company has determined that
the transfer
of risk of loss generally occurs when product is received by the
customer and,
accordingly, recognizes revenue at that time. Provision is made for
estimated
customer discounts and returns at the time of sale based on the Company’s
historical experience.
As
is
customary in the consumer products industry, the
Company participates
in the
promotional programs of its customers to enhance the sale of its
products.
The
cost
of these promotional programs varies based on the actual number of
units sold
during a finite period of time.
The
Company estimates the cost of such promotional programs at their
inception based
on historical experience and current market conditions and reduces
sales by such
estimates.
These
promotional programs consist of direct to consumer incentives such
as
coupons
and temporary price reductions, as well as incentives to the Company’s
customers, such as slotting and display fees, and cooperative advertising.
Estimates of the costs of these promotional programs are based on
(i) historical
sales experience, (ii) the current offering, (iii) forecasted data,
(iv) current
market conditions, and (v) communication with customer purchasing/marketing
personnel. At
the
completion of the promotional program, the estimated amounts are
adjusted to
actual results.
Due
to
the nature of the consumer products industry, the Company is required
to
estimate future product returns. Accordingly, the Company records
an estimate of
product returns concurrent with recording sales which is made after
analyzing
(i) historical return rates, (ii) current economic trends, (iii)
changes in
customer demand, (iv) product acceptance, (v) seasonality of our
product
offerings, and (vi) the impact of changes in product formulation,
packaging and
advertising.
Costs
of Sales
Costs
of
sales include product costs, warehousing costs, inbound and outbound
shipping
costs, and handling and storage costs. Shipping, warehousing and
handling costs
were $24.5 million and $22.7 million for the years ended March 31,
2006 and
2005, respectively, as well as $4.1 million and $1.1 million for
the periods
April 1, 2003 to February 5, 2004 and February 6, 2004 to March 31,
2004,
respectively.
Advertising
and Promotion Costs
Advertising
and promotion costs are expensed as incurred. Slotting fees associated
with
products are recognized as a reduction of sales. Under slotting arrangements,
the retailers allow the Company’s products to be placed on the stores’ shelves
in exchange for such fees. Direct reimbursements of advertising costs
are
reflected as a reduction of advertising costs in the period earned.
Stock-based
Compensation
During
2006, the Company adopted FASB, Statement No. 123(R), “Share-Based Payment”
(“Statement No. 123(R)”) with the initial grants of Prestige Holdings’
restricted stock and options to purchase common stock to employees
and directors
in accordance with the provisions of Prestige Holdings’ 2005 Long-Term
Equity Incentive Plan (“the Plan”). Statement No. 123(R) requires the Company to
measure the cost of services to be rendered based on the grant-date
fair value
of the equity award. Compensation expense is to be recognized over
the period
which an employee is required to provide service in exchange for
the award,
generally referred to as the requisite service period. The benefits,
as well as
the costs associated with these relationships, are contributed to
the Company.
Accordingly, the Company recorded non-cash compensation charges of
$0.4 million
during the year ended March 31, 2006. There were no stock-based compensation
charges incurred during 2005 or the
F-56
period
from February 6, 2004 to March 31, 2004. The Company recorded non-cash
compensation of $67,000 during the period from April 1, 2003 to February
5,
2005.
Income
Taxes
Income
taxes are recorded in accordance with the provisions of FASB Statement
No. 109,
“Accounting for Income Taxes” (“Statement No. 109”). Pursuant to Statement No.
109, deferred tax assets and liabilities are determined based on
the differences
between the financial reporting and tax bases of assets and liabilities
using
the enacted tax rates and laws that will be in effect when the differences
are
expected to reverse. A valuation allowance is established when necessary
to
reduce deferred tax assets to the amounts expected to be realized.
Derivative
Instruments
FASB
Statement No. 133, “Accounting for Derivative Instruments and Hedging
Activities” (“Statement No. 133”), requires companies to recognize derivative
instruments as either assets or liabilities in the balance sheet
at fair value.
The accounting for changes in the fair value of a derivative instrument
depends
on whether it has been designated and qualifies as part of a hedging
relationship and further, on the type of hedging relationship. For
those
derivative instruments that are designated and qualify as hedging
instruments, a
company must designate the hedging instrument, based upon the exposure
being
hedged, as a fair value hedge, a cash flow hedge or a hedge of a
net investment
in a foreign operation.
The
Company has designated its derivative financial instruments as cash
flow hedges
because they hedge exposure to variability in expected future cash
flows that
are attributable to interest rate risk. For these hedges, the effective
portion
of the gain or loss on the derivative instrument is reported as a
component of
other comprehensive income (loss) and reclassified into earnings
in the same
line item associated with the forecasted transaction in the same
period or
periods during which the hedged transaction affects earnings. Any
ineffective
portion of the gain or loss on the derivative instruments is recorded
in results
of operations immediately.
Fair
Value of Financial Instruments
The
carrying value of cash, accounts receivable and accounts payable
at March 31,
2006 and 2005 approximates fair value due to the short-term nature
of these
instruments. The carrying value of long-term debt at March 31, 2006
and 2005
approximates fair value based on interest rates for instruments with
similar
terms and maturities.
Recently
Issued Accounting Standards
In
March
2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional
Asset Retirement Obligations” (“FIN 47”) which clarifies guidance provided by
Statement No. 143, “Accounting for Asset Retirement Obligations.” FIN 47 is
effective for the Company no later than March 31, 2006. The adoption
of FIN 47
is not expected to have a significant impact on the Company’s financial
position, results of operations or cash flows.
In
May
2005, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No.
154, “Accounting Changes and Error Corrections” (“Statement No. 154”) which
replaces Accounting Principles Board Opinion No. 20, “Accounting Changes” (“APB
Opinion No. 20”) and FASB Statement No. 3, “Reporting Accounting Changes in
Interim Financial Statements.” Statement No. 154 requires that voluntary changes
in accounting principle be applied retrospectively to the balances
of assets and
liabilities as of the beginning of the earliest period for which
retrospective
application is practicable and that a corresponding adjustments be
made to the
opening balance of retained earnings. APB Opinion No. 20 had required
that most
voluntary changes in accounting principle be recognized by including
in net
income the cumulative effect of changing to the new principle. Statement
No. 154
is effective for all accounting changes and corrections of errors
made in fiscal
years beginning after December 15, 2005.
F-57
|
2.
|
Acquisition
of Businesses
|
Acquisitions
of Medtech, Denorex and Spic and Span
On
February 6, 2004, the Company acquired all of the outstanding capital
stock of
Medtech and Denorex for a purchase price of approximately $244.3
million
(including fees and expenses of $2.4 million).
On
March
5, 2004, the Company acquired all of the outstanding capital stock
of Spic and
Span for a purchase price of approximately $30.3 million.
The
Medtech Acquisition, including fees and expenses related to the new
financing of
$7.7 million, and the Spic and Span Acquisition were financed through
the
following sources:
|
(In
Thousands)
|
Medtech
|
Spic
and Span
|
|||||
|
Medtech
revolving credit facility
|
$
|
195
|
$
|
11,650
|
|||
|
Medtech
term loan facility
|
100,000
|
--
|
|||||
|
Medtech
subordinated notes
|
42,941
|
--
|
|||||
|
Issuance
of Preferred and Common Units
|
106,951
|
17,768
|
|||||
|
Total
sources of funds
|
$
|
250,087
|
$
|
29,418
|
|||
The
total
purchase prices of the Medtech Acquisition (which included cash of
$166.1
million paid to the selling stockholders, Prestige LLC Class B Preferred
Units
valued at an aggregate of $1.2 million, and Prestige LLC Common Units
valued at
an aggregate of $524.0 million, assumed debt and accrued interest
which was
retired of $74.0 million and acquisition costs of $2.4 million) and
the Spic and
Span Acquisition (which included cash of $4.9 million paid to the
selling
stockholders, 23,000 Prestige LLC Senior Preferred Units issued to
the selling
stockholders valued at $17.8 million, and assumed debt and accrued
interest
which was retired of $7.6 million) were allocated to the acquired
assets and
liabilities as set forth in the following table:
|
(In
Thousands)
|
Medtech
|
Spic
and Span
|
Total
|
|||||||
|
Cash
|
$
|
2,168
|
$
|
1,063
|
$
|
3,231
|
||||
|
Restricted
cash
|
700
|
--
|
700
|
|||||||
|
Accounts
receivable
|
10,622
|
1,849
|
12,471
|
|||||||
|
Inventories
|
9,959
|
908
|
10,867
|
|||||||
|
Prepaid
expenses and other current assets
|
151
|
31
|
182
|
|||||||
|
Property
and equipment
|
434
|
445
|
879
|
|||||||
|
Goodwill
|
55,639
|
--
|
55,639
|
|||||||
|
Intangible
assets
|
209,330
|
28,171
|
237,501
|
|||||||
|
Deferred
income taxes
|
--
|
141
|
141
|
|||||||
|
Accounts
payable
|
(6,672
|
)
|
(1,644
|
)
|
(8,316
|
)
|
||||
|
Accrued
liabilities
|
(6,264
|
)
|
(1,341
|
)
|
(7,605
|
)
|
||||
|
Long-term
debt
|
(71,868
|
)
|
(6,981
|
)
|
(78,849
|
)
|
||||
|
Deferred
income taxes
|
(36,601
|
)
|
--
|
(36,601
|
)
|
|||||
|
$
|
167,598
|
$
|
22,642
|
$
|
190,240
|
|||||
The
value
of the Prestige LLC Class B Preferred Units and the Prestige LLC
Common Units
issued to the selling stockholders was determined based on the cash
consideration received from GTCR and other investors concurrently
with the
acquisitions. The value of the Prestige LLC Senior Preferred Units
issued to the
selling stockholders in the Spic and Span Acquisition was determined
based on
the estimated cash flows that will accrue to the owners of the Senior
Preferred
Units, the timing of receipt and a market-based required rate of
return for the
Senior Preferred Units. A “unit” is an equity interest of a unitholder in the
profits, losses and distributions of a limited liability company,
or
“LLC.”
F-58
As
a
result of the Medtech Acquisition, the Company recorded indefinite
lived
trademarks of $153.2 million and $56.1 million of trademarks with
an estimated
weighted average useful life of 11 years. As a result of the Spic
and Span
Acquisition, the Company recorded indefinite lived trademarks of
$28.2
million.
Acquisition
of Bonita Bay
On
April
6, 2004, the Company acquired all of the outstanding capital stock
of Bonita Bay
for a purchase price of approximately $561.3 million (including working
capital
adjustments totaling $1.1 million). In accordance with Statement
No. 141, the
Company was determined to be the accounting acquirer.
The
Bonita Bay Acquisition, including fees and expenses related to the
new financing
of $22.7 million and funds used to pay off $154.4 million of debt
and accrued
interest incurred to finance the Medtech Acquisition, was financed
through the
following sources:
| (In Thousands) | ||||
|
Revolving
Credit Facility
|
$
|
3,512
|
||
|
Tranche
B Term Loan Facility
|
355,000
|
|||
|
Tranche
C Term Loan Facility
|
100,000
|
|||
|
9.25%
Senior Subordinated Notes
|
210,000
|
|||
|
Issuance
of Preferred and Common units
|
58,579
|
|||
|
Total
sources of funds
|
$
|
727,091
|
The
total
purchase price of the Bonita Bay Acquisition (which included cash
of $379.2
million paid to the selling stockholders, Prestige LLC Class B Preferred
Units
valued at an aggregate of $91,000 and Prestige LLC Common Units valued
at an
aggregate of $1,000, assumed debt and accrued interest which was
retired of
$176.9 million and acquisition costs of $3.6 million, was allocated
to the
acquired assets and liabilities as set forth in the following
table:
| (In Thousands) | ||||
|
Cash
|
$
|
4,304
|
||
|
Accounts
receivable
|
13,186
|
|||
|
Inventories
|
16,185
|
|||
|
Prepaid
expenses and other current assets
|
1,391
|
|||
|
Property
and equipment
|
2,982
|
|||
|
Goodwill
|
217,234
|
|||
|
Intangible
assets
|
352,460
|
|||
|
Accounts
payable and accrued liabilities
|
(21,189
|
)
|
||
|
Long-term
debt
|
(172,898
|
)
|
||
|
Deferred
income taxes
|
(34,429
|
)
|
||
|
$
|
379,226
|
As
a
result of the Bonita Bay Acquisition, the Company recorded indefinite
lived
trademarks of $340.7 million and $11.8 million of trademarks with
an estimated
weighted average useful life of seven years.
Acquisition
of Vetco, Inc.
On
October 6, 2004, the Company acquired all the outstanding stock of
Vetco, Inc.
for a purchase price of approximately $50.6 million. To finance the
acquisition,
the Company used cash on hand of approximately $20.6 million and
borrowed an
additional $12.0 million on its Revolving Credit Facility and $18.0
million on
its Tranche B Term Loan Facility.
F-59
The
total
purchase price of the Vetco Acquisition was allocated to the acquired
assets and
liabilities as set forth in the following table:
| (In Thousands) | ||||
|
Accounts
receivable
|
$
|
2,136
|
||
|
Inventories
|
910
|
|||
|
Prepaid
expenses and other current assets
|
37
|
|||
|
Property
and equipment
|
5
|
|||
|
Goodwill
|
21,858
|
|||
|
Intangible
assets
|
27,158
|
|||
|
Accounts
payable and accrued liabilities
|
(1,455
|
)
|
||
|
$
|
50,649
|
As
a
result of the Vetco Acquisition, the Company recorded $27.0 million
of
trademarks with an estimated useful life of 20 years and $158,000
related to a
5-year non-compete agreement with the former owner of Vetco.
The
following table reflects the unaudited results of the Company’s operations on a
pro forma basis as if the Medtech, Spic and Span, Bonita Bay and
Vetco
Acquisitions had been completed on April 1, 2003. The pro forma financial
information is not necessarily indicative of the operating results
that would
have occurred had the acquisitions been consummated as of April 1,
2003, nor is
it necessarily indicative of future operating results.
|
Years
Ended March 31
|
|||||||
|
2005
|
2004
|
||||||
|
(Unaudited
Pro forma)
|
|||||||
|
Net
sales
|
$
|
295,247
|
$
|
282,418
|
|||
|
Income
before income taxes
|
$
|
29,277
|
$
|
37,921
|
|||
|
Net
income
|
$
|
17,733
|
$
|
23,156
|
|||
Acquisition
of Dental Concepts, LLC
On
November 8, 2005, the Company acquired all of the ownership interests
of Dental
Concepts, LLC (“Dental Concepts”), a marketer of therapeutic oral care products
sold under “The
Doctor’s®”
brand.
The Company expects that The
Doctor’s®
product
line will benefit from its business model of outsourcing manufacturing
and
increasing awareness through targeted marketing and advertising.
Additionally,
the Company anticipates benefits associated with its ability to leverage
certain
economies of scale and the elimination of redundant operations.
The
purchase price of the ownership interests was approximately $30.9
million (net
of cash acquired of $0.3 million), including fees and expenses of
the
acquisition of $0.9 million. The Company financed the acquisition
price through
the utilization of its senior revolving credit facility and with
cash resources
of $30.0 million and $0.9 million, respectively.
The
following table summarizes the estimated fair values of the assets
acquired and
the liabilities assumed at the date of acquisition. The Company has
obtained
independent valuations of certain tangible and intangible assets;
however, the
final purchase price will not be determined until all contingencies
have been
resolved. Consequently, the allocation of the purchase price is subject
to
refinement. At March 31, 2006, $1.5 million is being held in escrow
pending the
resolution of the aforementioned contingencies. Future disbursements
from escrow
will increase the amount recorded in the Company’s consolidated balance sheet as
goodwill.
F-60
The
fair
values assigned to the acquired assets and liabilities consist of
the
following:
|
(In
thousands)
|
||||
|
Accounts
receivable
|
$
|
2,774
|
||
|
Inventories
|
1,852
|
|||
|
Prepaid
expenses and other current assets
|
172
|
|||
|
Property
and equipment
|
546
|
|||
|
Goodwill
|
5,096
|
|||
|
Intangible
assets
|
22,395
|
|||
|
Funds
in escrow
|
1,500
|
|||
|
Accounts
payable and accrued liabilities
|
(3,346
|
)
|
||
|
$
|
30,989
|
|||
As
a
result of the Dental Concepts acquisition, the Company recorded a
trademark
valued at $22.4 million with an estimated useful life of 20 years.
Goodwill
resulting from this transaction was $5.1 million. As discussed above,
this
recorded amount is subject to change as additional information becomes
available; however, it is estimated that such amount will be fully
deductible
for income tax purposes.
The
following table reflects the unaudited results of the Company’s operations on a
pro forma basis as if the Dental Concepts acquisition had been completed
on
April 1, 2004. It also includes the pro forma results from operations
of Vetco,
Inc., which was acquired in October 2004, as if the acquisition of
Vetco, Inc.
had been completed on April 1, 2004. The pro forma financial information
is not
necessarily indicative of the operating results that would have occurred
had the
acquisitions been consummated on April 1, 2004, nor is it necessarily
indicative
of future operating results.
|
Year
Ended March 31
|
|||||||
|
(In
thousands, except per share data)
|
2006
|
2005
|
|||||
|
(Unaudited
Pro forma)
|
|||||||
|
Revenues
|
$
|
304,711
|
$
|
308,062
|
|||
|
Income
before provision for income taxes
|
$
|
46,772
|
$
|
20,730
|
|||
|
Net
income
|
$
|
25,797
|
$
|
11,418
|
|||
|
3.
|
Accounts
Receivable
|
The
components of accounts receivable consist of the following (in
thousands):
|
March
31
|
|||||||
|
2006
|
2005
|
||||||
|
Accounts
receivable
|
$
|
40,140
|
$
|
36,985
|
|||
|
Other
receivables
|
1,870
|
835
|
|||||
|
42,010
|
37,820
|
||||||
|
Less
allowances for discounts, returns and
uncollectible
accounts
|
(1,968
|
)
|
(1,902
|
)
|
|||
|
$
|
40,042
|
$
|
35,918
|
||||
F-61
|
4.
|
Inventories
|
Inventories
consist of the following (in thousands):
|
March
31
|
|||||||
|
2006
|
2005
|
||||||
|
Packaging
and raw materials
|
$
|
3,278
|
$
|
3,587
|
|||
|
Finished
goods
|
30,563
|
21,246
|
|||||
|
$
|
33,841
|
$
|
24,833
|
||||
Inventories
are shown net of allowances for obsolete and slow moving inventory
of $1.0
million and $1.5 million at March 31, 2006 and 2005, respectively.
5. Property
and Equipment
Property
and equipment consist of the following (in thousands):
|
March
31
|
|||||||
|
2006
|
2005
|
||||||
|
Machinery
|
$
|
3,722
|
$
|
3,099
|
|||
|
Computer
equipment
|
987
|
771
|
|||||
|
Furniture
and fixtures
|
303
|
244
|
|||||
|
Leasehold
improvements
|
340
|
173
|
|||||
|
5,352
|
4,287
|
||||||
|
Accumulated
depreciation
|
(3,699
|
)
|
(1,963
|
)
|
|||
|
$
|
1,653
|
$
|
2,324
|
||||
6. Goodwill
A
reconciliation of the activity affecting goodwill by operating segment
is as
follows (in thousands):
|
Over-the-Counter
|
Personal
|
Household
|
|||||||||||
|
Drug
|
Care
|
Cleaning
|
Consolidated
|
||||||||||
|
Balance
- March 31, 2004
|
$
|
51,138
|
$
|
4,643
|
$
|
--
|
$
|
55,781
|
|||||
|
Additions
|
166,543
|
--
|
72,549
|
239,092
|
|||||||||
|
Adjustment
related to the February 2004 Medtech acquisition
|
(142
|
)
|
--
|
--
|
(142
|
)
|
|||||||
|
Balance
- March 31, 2005
|
217,539
|
4,643
|
72,549
|
294,731
|
|||||||||
|
Additions
|
5,096
|
--
|
--
|
5,096
|
|||||||||
|
Impairments
|
--
|
(1,892
|
)
|
--
|
(1,892
|
)
|
|||||||
|
Balance
- March 31, 2006
|
$
|
222,635
|
$
|
2,751
|
$
|
72,549
|
$
|
297,935
|
|||||
In
connection with the annual test for goodwill impairment, the Company
recorded a
$1.9 million charge to adjust the carrying amount of goodwill related
to one of
the reporting units in the personal care segment to its fair value
as determined
by use of discounted cash flow methodologies.
F-62
7. Intangible
Assets
On
October 28, 2005, the Company acquired the “Chore
Boy®”
brand
of cleaning pads and sponges for $22.7 million, including direct
costs of $0.5
million.
During
the year ended March 31, 2006, management determined that declining
sales in the
Company’s personal care segment might be indicative of an impairment of the
Company’s intangible assets. Accordingly, in connection with its annual
impairment tests of goodwill and indefinite-lived intangibles in
accordance
Statement No. 142, management also performed an impairment analysis
for all of
the Company’s finite-lived intangible assets in accordance with Statement No.
144. As a result of this analysis, the Company recorded a $7.4 million
charge to
adjust the carrying amount of certain trademarks related to the personal
care
segment to their fair values as determined by use of discounted cash
flow
methodologies. The Company also recorded a related impairment charge
to
goodwill.
A
reconciliation of the activity affecting intangible assets is as
follows (in
thousands):
|
Year
Ended March 31, 2006
|
|||||||||||||
|
Indefinite
Lived
|
Finite
Lived
|
Non
Compete
|
|||||||||||
|
Trademarks
|
Trademarks
|
Agreement
|
Totals
|
||||||||||
|
Carrying
Amounts
|
|||||||||||||
|
Balance
- March 31, 2005
|
$
|
522,346
|
$
|
94,900
|
$
|
158
|
$
|
617,404
|
|||||
|
Additions
|
22,617
|
22,395
|
38
|
45,050
|
|||||||||
|
Impairments
|
--
|
(7,425
|
)
|
--
|
(7,425
|
)
|
|||||||
|
Balance
- March 31, 2006
|
$
|
544,963
|
$
|
109,870
|
$
|
196
|
$
|
655,029
|
|||||
|
Accumulated
Amortization
|
|||||||||||||
|
Balance
- March 31, 2005
|
$
|
--
|
$
|
8,775
|
$
|
16
|
$
|
8,791
|
|||||
|
Additions
|
--
|
9,004
|
37
|
9,041
|
|||||||||
|
Balance
- March 31, 2006
|
$
|
--
|
$
|
17,779
|
$
|
53
|
$
|
17,832
|
|||||
|
Year
Ended March 31, 2005
|
|||||||||||||
|
Indefinite
Lived
|
Finite
Lived
|
Non
Compete
|
|||||||||||
|
Trademarks
|
Trademarks
|
Agreement
|
Totals
|
||||||||||
|
Carrying
Amounts
|
|||||||||||||
|
Balance
- March 31, 2004
|
$
|
181,361
|
$
|
56,160
|
$
|
--
|
$
|
237,501
|
|||||
|
Additions
|
340,985
|
38,760
|
158
|
379,903
|
|||||||||
|
Balance
- March 31, 2005
|
$
|
522,346
|
$
|
94,900
|
$
|
158
|
$
|
617,404
|
|||||
|
Accumulated
Amortization
|
|||||||||||||
|
Balance
- March 31, 2004
|
$
|
--
|
$
|
890
|
$
|
--
|
$
|
890
|
|||||
|
Additions
|
--
|
7,885
|
16
|
7,901
|
|||||||||
|
Balance
- March 31, 2005
|
$
|
--
|
$
|
8,775
|
$
|
16
|
$
|
8,791
|
|||||
F-63
At
March
31, 2006, intangible assets are expected to be amortized over a period
of five
to 30 years as follows (in thousands):
|
Year
Ending March 31
|
||||
|
2007
|
$
|
8,774
|
||
|
2008
|
8,774
|
|||
|
2009
|
8,769
|
|||
|
2010
|
7,354
|
|||
|
2011
|
7,338
|
|||
|
Thereafter
|
51,225
|
|||
|
$
|
92,234
|
|||
8. Other
Accrued Liabilities
Other
accrued liabilities consist of the following (in thousands):
|
|
March 31
|
|
||||||||
|
|
2006
|
2005
|
||||||||
|
|
||||||||||
|
Accrued
marketing costs
|
$
|
2,513
|
$
|
2,693
|
||||||
|
Reserve
for Pecos returns
|
--
|
242
|
||||||||
|
Accrued
payroll
|
813
|
2,004
|
||||||||
|
Accrued
commissions
|
248
|
184
|
||||||||
|
Other
|
1,008
|
(594
|
)
|
|||||||
|
|
$
|
4,582
|
$
|
4,529
|
||||||
F-64
9. Long-Term
Debt
|
Long-term
debt consists of the following (in thousands):
|
March
31
|
||||||
|
2006
|
2005
|
||||||
|
Senior
revolving credit facility (“Revolving Credit Facility”), which expires on
April 6, 2009, is available for maximum borrowings of up
to $60.0 million.
The Revolving Credit Facility bears interest at the Company’s option at
either the prime rate plus a variable margin or LIBOR plus
a variable
margin. The variable margins range from 0.75% to 2.50%
and at March 31,
2006, the interest rate on the Revolving Credit Facility
was 9.0% per
annum. The Company is also required to pay a variable commitment
fee on
the unused portion of the Revolving Credit Facility. At
March 31, 2006,
the commitment fee was 0.50% of the unused line. The Revolving
Credit
Facility is collateralized by substantially all of the
Company’s
assets.
|
$
|
7,000
|
$
|
--
|
|||
|
Senior
secured term loan facility, (“Tranche B Term Loan Facility”) that bears
interest at the Company’s option at either the prime rate plus a margin of
1.25% or LIBOR plus a margin of 2.25%. At March 31, 2006,
the weighted
average applicable interest rate on the Tranche B Term
Loan Facility was
7.22%. Principal payments of $933 and interest are payable
quarterly. In
February 2005, the Tranche B Term Loan Facility was amended
to increase
the amount available thereunder by $200.0 million, all
of which is
available at March 31, 2006. Current amounts outstanding
under the Tranche
B Term Loan Facility mature on April 6, 2011, while amounts
borrowed
pursuant to the amendment will mature on October 6, 2011.
The Tranche B
Term Loan Facility is collateralized by substantially all
of the Company’s
assets.
|
365,630
|
369,360
|
|||||
|
Senior
Subordinated Notes (“Senior Notes”) that bear interest at 9.25% which is
payable on April 15th
and October 15th
of
each year. The Senior Notes mature on April 15, 2012; however,
the Company
may redeem some or all of the Senior Notes on or prior
to April 15, 2008
at a redemption price equal to 100%, plus a make-whole
premium, and on or
after April 15, 2008 at redemption prices set forth in
the indenture
governing the Senior Notes. The Senior Notes are unconditionally
guaranteed by Prestige Brands International, LLC (“Prestige
International”), a wholly-owned subsidiary, and Prestige International’s
wholly-owned subsidiaries (other than the issuer). Each
of these
guarantees is joint and several. There are no significant
restrictions on
the ability of any of the guarantors to obtain funds from
their
subsidiaries.
|
126,000
|
126,000
|
|||||
|
498,630
|
495,360
|
||||||
|
Current
portion of long-term debt
|
(3,730
|
)
|
(3,730
|
)
|
|||
|
$
|
494,900
|
$
|
491,630
|
||||
The
Revolving Credit Facility and the Tranche B Term Loan Facility (together
the
“Senior Credit Facility”) contain various financial covenants, including
provisions that require the Company to maintain certain leverage
ratios,
interest coverage ratios and fixed charge coverage ratios. The Senior
Credit
Facility and the Senior Notes also contain provisions that restrict
the Company
from undertaking specified corporate actions, such as asset dispositions,
acquisitions, dividend payments, repurchase of common shares outstanding,
changes of control,
F-65
incurrence
of indebtedness, creation of liens and transactions with affiliates.
Additionally, the Senior Credit Facility and the Senior Notes contain
cross-default provisions whereby a default pursuant to the terms
and conditions
of either indebtedness will cause a default on the remaining indebtedness.
The
Company was in compliance with its applicable financial and restrictive
covenants under the Senior Credit Facility and the indenture governing
the
Senior Notes at March 31, 2006.
Future
principal payments required in accordance with the terms of the Senior
Credit
Facility and the Senior Notes are as follows (in thousands):
|
Year
Ending March 31
|
||||
|
2007
|
$
|
3,730
|
||
|
2008
|
3,730
|
|||
|
2009
|
3,730
|
|||
|
20010
|
10,730
|
|||
|
2011
|
3,730
|
|||
|
Thereafter
|
472,980
|
|||
|
$
|
498,630
|
|||
The
Company entered into a 5% interest rate cap agreement with a financial
institution to mitigate the impact of changing interest rates. The
agreement
provides for a notional amount of $20.0 million and terminates in
June 2006. The
Company also entered into interest rate cap agreements with another
financial
institution that became effective on August 30, 2005, with a total
notional
amount of $180.0 million and cap rates ranging from 3.25% to 3.75%.
The
agreements terminate on May 30, 2006, 2007 and 2008 as to $50.0 million,
$80.0
million and $50.0 million, respectively. The Company is accounting
for the
interest rate cap agreements as cash flow hedges. The fair value
of the interest
rate cap agreements, which is included in other long-term assets,
was $3.3
million and $2.8 million at March
31,
2006 and 2005, respectively.
10. Members’
Equity
On
February 6, 2004, in connection with the Medtech Acquisition, certain
senior
executive officers purchased an aggregate of 5.3 million common units
of
Prestige LLC at $.10 per unit. These units were purchased on the
same day and at
the same price that GTCR and TCW/Crescent Partners, Prestige LLC’s unrelated
equity investors (the “Sponsors”), purchased 50.0 million common units. The
value of the common units purchased in connection with the Medtech
Acquisition
was determined by subtracting from the acquisition purchase price,
the total
debt outstanding immediately following the acquisition and the liquidation
value
of outstanding preferred units issued in the acquisition. On March 17,
2004, other executive officers purchased an aggregate of 405,000
common units at
a price of $.10 per unit. The Sponsors did not purchase any common
units at this
time. On April 6, 2004, two employees purchased an aggregate of 50,000
common units at a price of $.10 per unit. The Sponsors did not purchase
any
common units at this time. Each of the above-referenced purchase
transactions by
management were conducted at fair market value based upon the price
paid by the
Sponsors in the Medtech Acquisition and the fact that such purchases
were made
at the same price and at the same time or shortly thereafter.
On
November 1, 2004, certain non-executive employees purchased an aggregate
of
337,000 common units for $0.70 per unit, which was equal to fair
market value.
This determination was based on a contemporaneous valuation that
utilized
traditional methodologies, including market multiples, comparable
transaction
and discounted cash flow. Prestige LLC relied on this fair market
value analysis
in setting the $0.70 per unit price for the purchases. Prestige LLC
awarded a
total cash bonus of $235,000 to allow employees to purchase such
units. In
connection therewith, the Company recorded a bonus expense of $235,000.
In this
regard, all employee purchases were conducted at fair market value
based upon
the contemporaneous valuation.
On
February 15, 2005, Prestige LLC redeemed all the outstanding Senior
Preferred
Units and Class B Preferred Units for $199.8 million which included
cumulative
and liquidating dividends of $26.8 million. The cumulative dividends
were based
on an 8% per year rate of return. Proceeds for this transaction were
contributed
by Prestige Holdings upon completion of Prestige Holdings’ IPO of equity
securities.
F-66
On
July
29, 2005, each of Prestige Holding’s four independent members of the Board of
Directors received an award of 6,222 shares of Prestige Holdings’ common stock
in connection with Prestige Holding’s directors’ compensation arrangements. Of
such amount, 1,778 shares represent a one-time grant of unrestricted
shares,
while the remaining 4,444 shares represent restricted shares that
vest over a
two year period. The benefits, as well as the costs associated with
these
relationships, were contributed to the Company.
On
August
4, 2005, the Company named a new President and Chief Operating Officer.
In
connection therewith, the Board of Directors granted this individual
30,888
shares of Prestige Holdings’ restricted common stock with a fair market value of
$12.95 per share, the closing price of the common stock on August
4, 2005, and
options to purchase an additional 61,800 shares of Prestige Holdings’ common
stock at an exercise price of $12.95 per share. The options vest
over a period
of five years while the restricted shares will vest contingent upon
the
attainment of certain revenue and earnings per share targets. The
benefits, as
well as the costs associated with these relationships, were contributed
to the
Company.
In
October 2005, the Company’s Board of Directors authorized the grant of 156,000
shares of Prestige Holdings’ restricted stock with a fair market value of $12.32
per share, the closing price of Prestige Holdings’ common stock on September 30,
2005, to employees. The issuance of such shares is contingent upon
Prestige
Holdings’ attainment of certain revenue and earnings per share targets.
Additionally, in the event that an employee terminates his or her
employment
with Prestige Holdings’ or any of its subsidiaries prior to October 1, 2008, the
vesting date, the shares will be forfeited. The benefits, as well
as the costs
associated with these relationships, were contributed to the
Company.
During
2006, Prestige Holdings’ repurchased 16,000 shares of Prestige Holdings’
restricted common stock from former employees pursuant to the provisions
of the
various employee stock purchase agreements. The average purchase
price of the
shares was $1.70 per share. The benefits associated with these transactions
were
contributed to the Company.
11. Related
Party Transactions
The
Company had entered into an agreement with an affiliate of GTCR Golder
Rauner
II, LLC (“GTCR”), a private equity firm and an investor in the Company, whereby
the GTCR affiliate was to provide management and advisory services
to the
Company for an aggregate annual compensation of $4.0 million. The
agreement was
terminated in February 2005. The
total
fee paid to the GTCR affiliate during 2005 was $3.4 million. During
2004, in
conjunction with the Medtech and Denorex Acquisitions, the Company
paid an
affiliate of GTCR a fee of $5.0 million.
In
January 2004, the Company forgave a $1.4 million receivable from
Spic and
Span.
The
Predecessor Company entered into agreements with its majority stockholder
to
provide advisory and management services. For the period from April
1, 2003 to
February 5, 2004, the Predecessor Company incurred $1.3 million for
these
services. In addition, the Predecessor Company reimbursed its majority
stockholder for travel expenses totaling $390,000 for the period
from April 1,
2003 to February 5, 2004.
|
12.
|
Share-Based
Compensation
|
In
connection with the Prestige Holdings’ initial public offering, the Board of
Directors adopted the 2005 Long-Term Equity Incentive Plan (“Plan”) which
provides for the grant, to a maximum of 5.0 million shares, of stock
options,
restricted stock units, deferred stock units and other equity-based
awards.
Directors, officers and other employees of the Company and its subsidiaries,
as
well as others performing services for the Company, are eligible
for grants
under the Plan. Management of Prestige Holdings believes that such
awards better
align the interests of its employees and those of its subsidiaries,
with the
interests of its shareholders.
F-67
During
the year ended March 31, 2006, Prestige Holdings adopted Statement
No. 123(R)
with the initial grants of restricted stock and options to purchase
common stock
to employees and directors in accordance with the provisions of the
Plan. The
benefits, as well as the costs associated with the Plan, were contributed
to the
Company. Compensation costs charged against income, and the related
tax benefits
recognized were $0.4 million and $0.2 million, respectively, for
the year ended
March 31, 2006.
Restricted
Shares
Restricted
shares granted under the plan generally vest in 3 to 5 years, contingent
on
attainment of Company performance goals, including both revenue and
earnings per
share growth targets. Certain restricted share awards provide for
accelerated
vesting if there is a change of control. The fair value of nonvested
restricted
shares is determined as the closing price of the Company’s common stock on the
day preceding the grant date. The weighted-average grant-date fair
value during
the year then ended was $12.32.
Options
The
Plan
provides that the exercise price of the option granted shall be no
less than the
fair market value of the Company’s common stock on the date the option is
granted. Options granted have a term of no greater than 10 years
from the date
of grant and vest in accordance with a schedule determined at the
time the
option is granted, generally 3 to 5 years. Certain option awards
provide for
accelerated vesting if there is a change in control.
The
fair
value of each option award is estimated on the date of grant using
the
Black-Scholes Option Pricing Model (“Black-Scholes Model”) that uses the
assumptions noted in the following table. Expected volatilities are
based the
historical volatility of the Company’s common stock and other factors, including
the historical volatilities of comparable companies. The Company
uses
appropriate historical data, as well as current data, to estimate
option
exercise and employee termination behaviors. Employees that are expected
to
exhibit similar exercise or termination behaviors are grouped together
for the
purposes of valuation. The expected terms of the options granted
are derived
from management’s estimates and information derived from the public filings of
companies similar to the Company and represent the period of time
that options
granted are expected to be outstanding. The risk-free rate represents
the yield
on U.S. Treasury bonds with a maturity equal to the expected term
of the granted
option. The weighted-average grant-date fair value of the options
granted during
the year ended March 31, 2006 was $5.02.
|
Year
Ended
March
31, 2006
|
||
|
Expected
volatility
|
31.0%
|
|
|
Weighted-average
volatility
|
31.0%
|
|
|
Expected
dividends
|
--
|
|
|
Expected
term in years
|
6.0
|
|
|
Risk-free
rate
|
4.2%
|
A
summary
of option activity under the Plan as of March 31, 2006, and changes
during the
year then ended is as follows:
|
Options
|
Shares
(000)
|
Weighted-Average
Exercise
Price
|
Weighted-
Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
(000)
|
|||||||||
|
Granted
|
61.8
|
$
|
12.95
|
5.0
|
$
|
--
|
|||||||
|
Exercised
|
--
|
||||||||||||
|
Forfeited
or expired
|
--
|
||||||||||||
|
Outstanding
at March 31, 2006
|
61.8
|
$
|
12.95
|
4.3
|
$
|
--
|
|||||||
|
Exercisable
at March 31, 2006
|
--
|
$
|
--
|
--
|
$
|
--
|
|||||||
Since
the
exercise price of the option exceeded the Company’s average stock price of
$11.84 during the six months ended March 31, 2006, the aggregate
intrinsic value
of outstanding options was $0 at March 31, 2006.
F-68
A
summary
of the Company’s restricted shares granted under the Plan as of March 31, 2006,
and changes during the year then ended is presented below:
|
Nonvested
Shares
|
Shares
(000)
|
Weighted-Average
Grant-Date
Fair
Value
|
|||||
|
Granted
|
211.6
|
$
|
12.29
|
||||
|
Vested
|
(13.1
|
)
|
11.25
|
||||
|
Forfeited
|
(6.5
|
)
|
12.32
|
||||
|
Nonvested
at March 31, 2006
|
192.0
|
$
|
12.24
|
||||
The
fair
value of nonvested restricted shares is determined as the closing
price of the
Company’s common stock on the day preceding the grant date. The weighted-average
grant-date fair value during the year then ended was $12.32.
As
of
March 31, 2006, there was $1.2 million of total unrecognized compensation
cost
related to nonvested share-based compensation arrangements under
the Plan based
on management’s estimate of the shares that will ultimately vest. The Company
expects to recognize such costs over the next 4.3 years. However,
the restricted
shares vest upon the attainment of Company performance goals and
if such goals
are not met, no compensation costs would ultimately be recognized
and any
previously recognized compensation cost would be reversed. The total
fair value
of shares vested during the year ended March 31, 2006 was $0.1 million.
There
were no options exercised during the year ended March 31, 2006; hence
there were
no tax benefits realized during the period. At March 31, 2006, there
were 4.7
million shares available for issuance under the Plan.
13. Income
Taxes
The
provision (benefit) for income taxes consists of the following (in
thousands):
|
Year
Ended March 31
|
February
6, 2004 to
March
31
|
April
1,
2003
to
February
5,
|
|||||||||||
|
2006
|
2005
|
2004
|
2004
|
||||||||||
|
(Predecessor
Basis)
|
|||||||||||||
|
Current
|
|||||||||||||
|
Federal
|
$
|
5,043
|
$
|
(544
|
)
|
$
|
4
|
$
|
406
|
||||
|
State
|
1,056
|
654
|
24
|
90
|
|||||||||
|
Foreign
|
206
|
102
|
--
|
--
|
|||||||||
|
Deferred
|
|||||||||||||
|
Federal
|
10,621
|
7,495
|
662
|
1,620
|
|||||||||
|
State
|
4,355
|
849
|
34
|
98
|
|||||||||
|
$
|
21,281
|
$
|
8,556
|
$
|
724
|
$
|
2,214
|
||||||
F-69
The
principal components of the Company’s deferred tax balances are as follows (in
thousands):
|
March
31
|
|||||||
|
2006
|
2005
|
||||||
|
Deferred
Tax Assets
|
|||||||
|
Allowance
for doubtful accounts and sales returns
|
$
|
1,975
|
$
|
992
|
|||
|
Inventory
capitalization
|
524
|
359
|
|||||
|
Inventory
reserves
|
420
|
567
|
|||||
|
Net
operating loss carryforwards
|
2,402
|
7,990
|
|||||
|
Property
and equipment
|
325
|
50
|
|||||
|
State
income taxes
|
5,319
|
2,978
|
|||||
|
Accrued
liabilities
|
233
|
207
|
|||||
|
AMT
tax credit carryforwards
|
--
|
278
|
|||||
|
Other
|
168
|
430
|
|||||
|
Deferred
Tax Liabilities
|
|||||||
|
Intangible
assets
|
(106,342
|
)
|
(93,851
|
)
|
|||
|
Interest
rate caps
|
(400
|
)
|
(200
|
)
|
|||
|
$
|
(95,376
|
)
|
$
|
(80,200
|
)
|
||
At
March
31, 2006, Medtech and Denorex had net operating loss carryforwards
of
approximately $2.9 million and $3.0 million, respectfully, which
may be used to
offset future taxable income of the consolidated group and which
begin to expire
in 2020. The net operating loss carryforwards are subject to annual
limitations
as to usage under Internal Revenue Code Section 382 of approximately
$240,000
for Medtech and $677,000 for Denorex.
A
reconciliation of the effective tax rate compared to the statutory
U.S. Federal
tax rate is as follows (in
thousands):
|
Year
Ended March 31
|
February
6, 2004 to
March
31
|
April
1,
2003
to
February
5,
|
|||||||||||||||||||||||
|
2006
|
2005
|
2004
|
2004
|
||||||||||||||||||||||
|
(Predecessor
Basis)
|
|||||||||||||||||||||||||
|
%
|
%
|
%
|
%
|
||||||||||||||||||||||
|
Income
tax provision at statutory rate
|
$
|
16,645
|
35.0
|
$
|
6,384
|
34.0
|
$
|
664
|
34.0
|
$
|
1,822
|
34.0
|
|||||||||||||
|
Foreign
tax provision
|
59
|
0.1
|
102
|
.5
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
State
income taxes, net of federal income tax benefit
|
2,096
|
4.4
|
901
|
4.8
|
23
|
1.2
|
165
|
3.1
|
|||||||||||||||||
|
Increase
in net deferred tax liability resulting from an increase
in federal tax
rate to 35%
|
--
|
--
|
1,147
|
6.2
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
Increase
in net deferred tax liability resulting from an increase
in the effective
state tax rate
|
2,019
|
4.2
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
Amortization
of intangible assets
|
--
|
--
|
--
|
--
|
--
|
94
|
1.8
|
||||||||||||||||||
|
Goodwill
|
461
|
1.0
|
--
|
--
|
--
|
--
|
--
|
--
|
|||||||||||||||||
|
Valuation
allowance
|
--
|
--
|
--
|
--
|
--
|
--
|
321
|
5.9
|
|||||||||||||||||
|
Other
|
1
|
0.0
|
22
|
0.1
|
37
|
1.9
|
(188
|
)
|
(3.5
|
)
|
|||||||||||||||
|
Provision
for income taxes from continuing operations
|
$
|
21,281
|
44.7
|
$
|
8,556
|
45.6
|
$
|
724
|
37.1
|
$
|
2,214
|
41.3
|
|||||||||||||
F-70
14. Commitments
and Contingencies
In
June
2003, Dr. Jason Theodosakis filed a lawsuit, Theodosakis v. Walgreens,
et al.,
in the United States District Court in Arizona, alleging that two
of the
Company’s subsidiaries, Medtech Products, Inc. and Pecos Pharmaceutical,
Inc.,
as well as other unrelated parties, infringed the trade dress of
two of his
published books. Specifically, Dr. Theodosakis published “The Arthritis Cure”
and “Maximizing the Arthritis Cure” regarding the use of dietary supplements to
treat arthritis patients. Dr. Theodosakis alleged that his books
have a
distinctive trade dress, or cover layout, design, color and typeface,
and those
products that the defendants sold under the ARTHx trademarks infringed
the
books’ trade dress and constituted unfair competition and false designation
of
origin. Additionally, Dr. Theodosakis alleged that the defendants
made false
endorsements of the products by referencing his books on the product
packaging
and that the use of his name, books and trade dress invaded his right
to
publicity. The Company sold the ARTHx trademarks, goodwill and inventory
to a
third party, Contract Pharmacal Corporation, in March 2003. On January
12, 2005,
the court granted the Company’s motion for summary judgment and dismissed all
claims against Medtech Products and Pecos Pharmaceutical. The plaintiff
filed an
appeal in the U.S. Court of Appeals which was denied on March 28,
2006.
Subsequently, the plaintiff filed a petition for rehearing which
is
pending.
On
January 3, 2005, the Company was served with process by its former
lead counsel
in the Theodosakis litigation seeking $679,000 plus interest. The
case was filed
in the Supreme Court of New York in New York County and was styled
as Dickstein
Shapiro et al v. Medtech Products, Inc. In February 2005, the plaintiff
filed an
amended complaint naming Pecos Pharmaceutical as defendant. The Company
answered
and filed a counterclaim against Dickstein and also filed a third
party
complaint against the Lexington Insurance Company, the Company’s product
liability carrier. A mediation involving all parties was conducted
in March 2006
which resulted in settlement of the litigation. Pursuant to the terms
of the
settlement, the Company paid $126,000 to the Dickstein firm.
The
Company and certain of its officers and directors are defendants
in a
consolidated putative securities class action lawsuit filed in the
United States
District Court for the Southern District of New York (the “Consolidated
Action”). The first of the six consolidated cases was filed on August 3,
2005.
Plaintiffs purport to represent a class of stockholders of the Company
who
purchased shares between February 9, 2005 through November 15, 2005.
Plaintiffs
also name as defendants the underwriters in the Company’s initial public
offering and a private equity fund that was a selling stockholder
in the
offering. The District Court has appointed a Lead Plaintiff. On December
23,
2005, the Lead Plaintiff filed a Consolidated Class Action Complaint,
which
asserts claims under Sections 11, 12(a)(2) and 15 of the Securities
Act of 1933
and Sections 10(b), 20(a), and 20A of the Securities Exchange Act
of 1934. The
Lead Plaintiff generally alleges that the Company issued a series
of materially
false and misleading statements in connection with its initial public
offering
and thereafter in regard to the following areas: the accounting issues
described
in the Company’s press release issued on or about November 15, 2005; and the
alleged failure to disclose that demand for certain of the Company’s products
was declining and that the Company was planning to withdraw several
products
from the market. Plaintiffs seek an unspecified amount of damages.
The Company
filed a motion to dismiss the Consolidated Class Action Complaint
in February
2006. Oral argument on the motion is expected in June 2006. The Company’s
management believes the allegations to be unfounded and will vigorously
pursue
its defenses; however, the Company cannot reasonably estimate the
potential
range of loss, if any.
On
September 6, 2005, another putative securities class action lawsuit
substantially similar to the initially-filed complaints in the Consolidated
Action described above was filed against the same defendants in the
Circuit
Court of Cook County, Illinois (the “Chicago Action”). In light of the
first-filed Consolidated Action, proceedings in the Chicago Action
have been
stayed until a ruling on defendants’ anticipated motions to dismiss the
consolidated complaint in the Consolidated Action. The Company’s management
believes the allegations to be unfounded and will vigorously pursue
its
defenses; however, the Company cannot reasonably estimate the potential
range of
loss, if any.
On
May
23, 2006, Similasan Corporation filed a lawsuit against the Company
in the
United States District Court for the District of Colorado in which
Similasan
alleged false designation of origin, trademark and trade dress infringement,
and
deceptive trade practices by the Company related to Murine
for
Allergy Eye Relief, Murine
for
Tired Eye Relief, and Murine
for
Earache Relief, as applicable. Similasan has requested injunctive
relief, an
F-71
accounting
of profits and damages and litigation costs and attorneys’ fees. In addition to
the lawsuit filed by Similasan in the U.S. District Court for the
District of
Colorado, the Company recently received a cease and desist letter
from Swiss
legal counsel to Similasan and its parent company, Similasan AG,
a Swiss
company. In the cease and desist letter, Similasan and Similasan
AG have alleged
a breach of the Secrecy Agreement executed by the Company and demanded
that the
Company cease and desist from (i) using confidential information
covered by the
Secrecy Agreement; and (ii) manufacturing, distributing, marketing
or selling
certain of its homeopathic products. The Company’s management believes the
allegations to be without merit and intends to vigorously pursue
its defenses;
however, the Company cannot reasonably estimate the potential range
of loss, if
any.
The
Company is also involved from time to time in routine legal matters
and other
claims incidental to its business. The Company reviews outstanding
claims and
proceedings internally and with external counsel as necessary to
assess
probability of loss and for the ability to estimate loss. These assessments
are
re-evaluated each quarter or as new information becomes available
to determine
whether a reserve should be established or if any existing reserve
should be
adjusted. The actual cost of resolving a claim or proceeding ultimately
may be
substantially different than the amount of the recorded reserve.
In addition,
because it is not permissible under generally accepted accounting
principles to
establish a litigation reserve until the loss is both probable and
estimable, in
some cases there may be insufficient time to establish a reserve
prior to the
actual incurrence of the loss (upon verdict and judgment at trial,
for example,
or in the case of a quickly negotiated settlement). The Company believes
the
resolution of routine matters and other incidental claims, taking
into account
reserves and insurance, will not have a material adverse effect on
its business,
financial condition or results of operations.
Lease
Commitments
The
Company has operating leases for office facilities in New York, New
Jersey and
Wyoming, which expire at various dates through April 9, 2009.
The
following summarizes future minimum lease payments for the Company’s operating
leases:
|
Year
Ending March 31
|
||||
|
2007
|
$
|
665
|
||
|
2008
|
559
|
|||
|
2009
|
553
|
|||
|
2010
|
76
|
|||
|
$
|
1,853
|
|||
Rent
expense for 2006 and 2005 was $584,000 and $512,000 respectively.
Rent expense
totaled $62,000 for the period from February 6, 2004 to March 31,
2004 and
$357,000 for the period from April 1, 2003 to February 5, 2004 (predecessor
basis), net of rent income from subleases totaling $23,000 for the
period from
February 6, 2004 to March 31, 2004 (successor basis) and $96,000
for the period
from April 1, 2003 to February 5, 2004 (predecessor basis).
15. Concentrations
of Risk
The
Company’s sales are concentrated in the areas of over-the-counter pharmaceutical
products, personal care products and household cleaning products.
The Company
sells its products to mass merchandisers, food and drug accounts,
and dollar and
club stores. During 2006 and 2005, and the periods from February 6, 2004 to
March 31, 2004, and April 1, 2003 to February 5, 2004,
approximately 61%, 64%, 66% and 74%, respectively, of the Company’s total sales
were derived from four of its brands. During 2006 and 2005, and the
periods
February 6, 2004 to March 31, 2004, and April 1, 2003 to
February 5, 2004, approximately 21%, 24%, 33%, and 30%, respectively, of
the Company’s net sales were made to one customer. At March 31, 2006,
approximately 22% of accounts receivable were owed by the same
customer.
The
Company manages product distribution in the continental United States
through a
main distribution center in St. Louis, Missouri. A serious disruption,
such
F-72
as
a
flood or fire, to the main distribution center could damage the Company’s
inventories and could materially impair the Company’s ability to distribute its
products to customers in a timely manner or at a reasonable cost.
The Company
could incur significantly higher costs and experience longer lead
times
associated with the distribution of its products to its customers
during the
time that it takes the Company to reopen or replace its distribution
center. As
a result, any such disruption could have a material adverse effect
on the
Company’s sales and profitability.
The
Company has relationships with over 40 third-party manufacturers.
Of those, the
top 10 manufacturers produce items that account for 81% of the Company’s gross
sales for 2006. The Company does not have long-term contracts with
the
manufacturers of products that account for approximately 34% of its
gross sales
for 2006. Not having manufacturing agreements for these products
exposes the
Company to the risk that the manufacturer could stop producing the
Company’s
products at any time, for any reason or fail to provide the Company
with the
level of products the Company needs to meet its customers’ demands. Without
adequate supplies of merchandise to sell to the Company’s customers, sales would
decrease materially and the Company’s business would suffer.
16. Business
Segments
Segment
information has been prepared in accordance with FASB Statement No.
131,
“Disclosures about Segments of an Enterprise and Related Information.” The
Company’s operating and reportable segments consist of (i) Over-the-Counter
Drugs, (ii) Personal Care and (iii) Household Cleaning.
There
were no inter-segment sales or transfers during 2006 and 2005 or
the periods
from April 1, 2003 to February 5, 2004 or February 6, 2004 to March
31, 2004.
The Company evaluates the performance of its operating segments and
allocates
resources to them based primarily on contribution margin.
The
table
below summarizes information about the Company’s operating and reportable
segments (in thousands).
|
Year
Ended March 31, 2006
|
|||||||||||||
|
Over-the-Counter
|
Personal
|
Household
|
|||||||||||
|
Drug
|
Care
|
Cleaning
|
Consolidated
|
||||||||||
|
Net
sales
|
$
|
160,942
|
$
|
27,925
|
$
|
107,372
|
$
|
296,239
|
|||||
|
Other
revenues
|
--
|
--
|
429
|
429
|
|||||||||
|
Total
revenues
|
160,942
|
27,925
|
107,801
|
296,668
|
|||||||||
|
Cost
of sales
|
58,491
|
15,851
|
65,088
|
139,430
|
|||||||||
|
Gross
profit
|
102,451
|
12,074
|
42,713
|
157,238
|
|||||||||
|
Advertising
and promotion
|
22,424
|
3,163
|
6,495
|
32,082
|
|||||||||
|
Contribution
margin
|
$
|
80,027
|
$
|
8,911
|
$
|
36,218
|
125,156
|
||||||
|
Other
operating expenses
|
41,252
|
||||||||||||
|
Operating
income
|
83,904
|
||||||||||||
|
Other
(income) expense
|
36,346
|
||||||||||||
|
Provision
for income taxes
|
21,281
|
||||||||||||
|
Net
income
|
$
|
26,277
|
|||||||||||
F-73
|
Year
Ended March 31, 2005
|
|||||||||||||
|
Over-the-Counter
|
Personal
|
Household
|
|||||||||||
|
Drug
|
Care
|
Cleaning
|
Consolidated
|
||||||||||
|
Net
sales
|
$
|
159,010
|
$
|
32,162
|
$
|
97,746
|
$
|
288,918
|
|||||
|
Other
revenues
|
--
|
--
|
151
|
151
|
|||||||||
|
Total
revenues
|
159,010
|
32,162
|
97,897
|
289,069
|
|||||||||
|
Cost
of sales
|
60,570
|
16,400
|
62,039
|
139,009
|
|||||||||
|
Gross
profit
|
98,440
|
15,762
|
35,858
|
150,060
|
|||||||||
|
Advertising
and promotion
|
18,543
|
5,498
|
5,656
|
29,697
|
|||||||||
|
Contribution
margin
|
$
|
79,897
|
$
|
10,264
|
$
|
30,202
|
120,363
|
||||||
|
Other
operating expenses
|
29,998
|
||||||||||||
|
Operating
income
|
90,365
|
||||||||||||
|
Other
(income) expense
|
71,589
|
||||||||||||
|
Provision
for income taxes
|
8,556
|
||||||||||||
|
Net
income
|
$
|
10,220
|
|||||||||||
|
Period
from February 6, 2004 to March 31, 2004
|
||||||||||||||||
|
Over-the-Counter
|
Personal
|
Household
|
||||||||||||||
|
Drug
|
Care
|
Cleaning
|
Other
|
Consolidated
|
||||||||||||
|
Net
sales
|
$
|
11,288
|
$
|
4,139
|
$
|
1,395
|
$
|
--
|
$
|
16,822
|
||||||
|
Other
revenues
|
--
|
--
|
--
|
54
|
54
|
|||||||||||
|
Total
revenues
|
11,288
|
4,139
|
1,395
|
54
|
16,876
|
|||||||||||
|
Cost
of sales
|
5,775
|
2,619
|
957
|
--
|
9,351
|
|||||||||||
|
Gross
profit
|
5,513
|
1,520
|
438
|
54
|
7,525
|
|||||||||||
|
Advertising
and promotion
|
711
|
510
|
46
|
--
|
1,267
|
|||||||||||
|
Contribution
margin
|
$
|
4,802
|
$
|
1,010
|
$
|
392
|
$
|
54
|
6,258
|
|||||||
|
Other
operating expenses
|
2,580
|
|||||||||||||||
|
Operating
income
|
3,678
|
|||||||||||||||
|
Other
(income) expense
|
1,725
|
|||||||||||||||
|
Provision
for income taxes
|
724
|
|||||||||||||||
|
Net
Income
|
$
|
1,229
|
||||||||||||||
F-74
|
Period
from April 1, 2003 to February 5, 2004
|
||||||||||||||||
|
Over-the-Counter
|
Personal
|
Household
|
||||||||||||||
|
Drug
|
Care
|
Cleaning
|
Other
|
Consolidated
|
||||||||||||
|
Net
sales
|
$
|
43,712
|
$
|
24,357
|
$
|
--
|
$ |
--
|
$
|
68,069
|
||||||
|
Other
revenues
|
--
|
--
|
--
|
333
|
333
|
|||||||||||
|
Total
revenues
|
43,712
|
24,357
|
--
|
333
|
68,402
|
|||||||||||
|
Cost
of sales
|
15,092
|
11,763
|
--
|
--
|
26,855
|
|||||||||||
|
Gross
profit
|
28,620
|
12,594
|
--
|
333
|
41,547
|
|||||||||||
|
Advertising
and promotion
|
5,214
|
4,847
|
--
|
--
|
10,061
|
|||||||||||
|
Contribution
margin
|
$
|
23,406
|
$
|
7,747
|
$
|
--
|
$
|
333
|
31,486
|
|||||||
|
Other
operating expenses
|
17,970
|
|||||||||||||||
|
Operating
income
|
13,516
|
|||||||||||||||
|
Other
(income) expense
|
8,157
|
|||||||||||||||
|
Provision
for income taxes
|
2,214
|
|||||||||||||||
|
Net
Income
|
$
|
3,145
|
||||||||||||||
During
each of 2006 and 2005, approximately 97% of the Company’s sales were made to
customers in the United States and Canada. During the periods from
April 1, 2003
to February 5, 2004 and February 6, 2004 to March 31, 2004, virtually
all sales
were made to customers in the United States and Canada. Other than
the United
States, no individual geographical area accounted for more than 10%
of net sales
in any of the periods presented. At March 31, 2006 and 2005, substantially
all
of the Company’s long-term assets were located in the United States of America
and have been allocated to the operating segments as follows:
|
Over-the-Counter
|
Personal
|
Household
|
|||||||||||
|
Drug
|
Care
|
Cleaning
|
Consolidated
|
||||||||||
|
Goodwill
|
$
|
222,635
|
$
|
2,751
|
$
|
72,549
|
$
|
297,935
|
|||||
|
Intangible
assets
|
|||||||||||||
|
Indefinite
lived
|
374,070
|
--
|
170,893
|
544,963
|
|||||||||
|
Finite
lived
|
71,888
|
20,313
|
33
|
92,234
|
|||||||||
|
445,958
|
20,313
|
170,926
|
637,197
|
||||||||||
|
$
|
668,593
|
$
|
23,064
|
$
|
243,475
|
$
|
935,132
|
||||||
F-75
17. Unaudited
Quarterly Financial Information
Unaudited
quarterly financial information for 2006 and 2005 is as follows:
Year
Ended March 31, 2006
|
Quarterly
Period Ended
|
|||||||||||||
|
(In
thousands, except for per
share
data)
|
June
30,
2005
|
September
30,
2005
|
December
31,
2005
|
March
31,
2006
|
|||||||||
|
Total
revenues
|
$
|
63,453
|
$
|
73,345
|
$
|
79,856
|
$
|
80,014
|
|||||
|
Cost
of sales
|
28,949
|
35,549
|
38,726
|
36,206
|
|||||||||
|
Gross
profit
|
34,504
|
37,796
|
41,130
|
43,808
|
|||||||||
|
Other
operating expenses
|
|||||||||||||
|
Advertising
and promotion
|
8,705
|
10,217
|
7,385
|
5,775
|
|||||||||
|
Depreciation
and amortization
|
2,631
|
2,635
|
2,834
|
2,694
|
|||||||||
|
General
and administrative
|
4,911
|
4,117
|
6,159
|
5,954
|
|||||||||
|
Interest
expense, net
|
8,510
|
8,671
|
9,526
|
9,639
|
|||||||||
|
Other
expenses (1)
|
--
|
--
|
--
|
9,317
|
|||||||||
|
24,757
|
25,640
|
25,904
|
33,379
|
||||||||||
|
Income
from operations
|
9,747
|
12,156
|
15,226
|
10,429
|
|||||||||
|
Provision
for income taxes
|
3,818
|
4,782
|
5,881
|
6,800
|
|||||||||
|
Net
income (loss)
|
$
|
5,929
|
$
|
7,374
|
$
|
9,345
|
$
|
3,629
|
|||||
|
(1)
|
Consists
of a $7.4 million charge for the impairment of intangible
assets and a
$1.9 million charge for the impairment of
goodwill.
|
F-76
Year
Ended March 31, 2005
|
Quarterly
Period Ended
|
|||||||||||||
|
(In
thousands, except for per
share
data)
|
June
30,
2004
|
September
30,
2004
|
December
31,
2004
|
March
31,
2005
|
|||||||||
|
Total
revenues
|
$
|
58,755
|
$
|
79,958
|
$
|
73,043
|
$
|
77,313
|
|||||
|
Cost
of sales
|
33,138
|
37,941
|
33,241
|
34,689
|
|||||||||
|
Gross
profit
|
25,617
|
42,017
|
39,802
|
42,624
|
|||||||||
|
Other
operating expenses
|
|||||||||||||
|
Advertising
and promotion
|
10,785
|
8,449
|
5,168
|
5,295
|
|||||||||
|
Depreciation
and amortization
|
2,289
|
2,254
|
2,605
|
2,652
|
|||||||||
|
General
and administrative
|
4,921
|
4,502
|
5,690
|
5,085
|
|||||||||
|
Interest
expense, net
|
11,049
|
10,834
|
11,994
|
10,849
|
|||||||||
|
Other
expenses (2)
|
7,567
|
--
|
--
|
19,296
|
|||||||||
|
36,611
|
26,039
|
25,457
|
43,177
|
||||||||||
|
Income
(loss) from operations
|
(10,994
|
)
|
15,978
|
14,345
|
(553
|
)
|
|||||||
|
Provision
(benefit) for income taxes
|
(3,902
|
)
|
6,076
|
5,218
|
1,164
|
||||||||
|
Net
income (loss)
|
(7,092
|
)
|
9,902
|
9,127
|
(1,717
|
)
|
|||||||
|
Cumulative
preferred dividends on Senior Preferred and Class B Preferred
Units
|
(3,619
|
)
|
(3,827
|
)
|
(3,895
|
)
|
(14,054
|
)
|
|||||
|
Net
income (loss) available
to
members
|
$
|
(10,711
|
)
|
$
|
6,075
|
$
|
5,232
|
$
|
(15,771
|
)
|
|||
(2) During
the quarter ended June 30, 2004, the Company recorded a $7.6 million
charge
related to the write-off of deferred financing costs and discount
on debt
associated with the borrowings retired in connection with the Medtech
Acquisition. During the quarter ended March 31, 2005, the Company
recorded a
$19.3 million charge related to the $184.0 million of debt retired
in connection
with its Initial Public Offering.
F-77
VALUATION
AND QUALIFYING ACCOUNTS
|
(In
Thousands)
|
Balance
at
Beginning
of
Period
|
Amounts
Charged
to
Expense
|
Deductions
|
Other
|
Balance
at
End
of
Period
|
||||||||||||||
|
Year
Ended March 31, 2006
|
|||||||||||||||||||
|
Reserves
for sales returns and allowance
|
$
|
1,652
|
$
|
23,748
|
$
|
23,732
|
$
|
232
|
(1
|
)
|
$
|
1,868
|
|||||||
|
Reserves
for trade promotions
|
1,493
|
2,481
|
2,522
|
137
|
(1
|
)
|
1,671
|
||||||||||||
|
Reserves
for consumer coupon redemptions
|
290
|
2,687
|
2,680
|
--
|
283
|
||||||||||||||
|
Allowance
for doubtful accounts
|
250
|
(1
|
)
|
92
|
59
|
(1
|
)
|
100
|
|||||||||||
|
Allowance
for inventory obsolescence
|
1,450
|
526
|
76
|
--
|
1,019
|
||||||||||||||
|
Deferred
tax valuation allowance
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||
|
Pecos
returns reserve
|
242
|
--
|
242
|
--
|
--
|
||||||||||||||
|
Year
Ended March 31, 2005
|
|||||||||||||||||||
|
Reserves
for sales returns and allowance
|
$
|
687
|
$
|
10,245
|
$
|
9,280
|
$
|
--
|
$
|
1,652
|
|||||||||
|
Reserves
for trade promotions
|
1,163
|
10,120
|
11,660
|
1,870
|
(2
|
)
|
1,493
|
||||||||||||
|
Reserves
for consumer coupon redemptions
|
266
|
2,265
|
2,891
|
650
|
(2 | ) |
290
|
||||||||||||
|
Allowance
for doubtful accounts
|
60
|
32
|
33
|
191
|
(2
|
)
|
250
|
||||||||||||
|
Allowance
for inventory obsolescence
|
124
|
769
|
266
|
823
|
(2
|
)
|
1,450
|
||||||||||||
|
Deferred
tax valuation allowance
|
--
|
--
|
--
|
--
|
--
|
||||||||||||||
|
Pecos
returns reserve
|
1,186
|
--
|
944
|
--
|
242
|
||||||||||||||
|
Period
from February 6, 2004 to March 31, 2004
|
|||||||||||||||||||
|
Reserves
for sales returns and allowance
|
$
|
652
|
$
|
315
|
$
|
568
|
$
|
288
|
(3
|
)
|
$
|
687
|
|||||||
|
Reserves
for trade promotions
|
1,943
|
213
|
1,542
|
549
|
(3
|
)
|
1,163
|
||||||||||||
|
Reserves
for consumer coupon redemptions
|
10
|
60
|
71
|
267
|
(3
|
)
|
266
|
||||||||||||
|
Allowance
for doubtful accounts
|
141
|
46
|
140
|
13
|
(3
|
)
|
60
|
||||||||||||
|
Allowance
for inventory obsolescence
|
88
|
70
|
60
|
26
|
(3
|
)
|
124
|
||||||||||||
|
Deferred
tax valuation allowance
|
1,744
|
--
|
--
|
(1,744
|
)
|
(4
|
)
|
--
|
|||||||||||
|
Pecos
returns reserve
|
1,349
|
--
|
163
|
--
|
1,186
|
||||||||||||||
F-78
SCHEDULE
II
VALUATION
AND QUALIFYING ACCOUNTS
(Continued)
|
Balance
at
Beginning
of
Period
|
Amounts
Charged
to
Expense
|
Deductions
|
Other
|
Balance
at
End
of
Period
|
||||||||||||
|
(In
Thousands)
|
||||||||||||||||
|
Period
from April 1, 2003 to February 5, 2004
|
||||||||||||||||
|
Reserves
for sales returns and allowance
|
$
|
222
|
$
|
3,348
|
$
|
3,025
|
$
|
--
|
$
|
545
|
||||||
|
Reserves
for trade promotions
|
2,228
|
3,241
|
3,526
|
--
|
1,943
|
|||||||||||
|
Reserves
for consumer coupon redemptions
|
62
|
473
|
525
|
--
|
10
|
|||||||||||
|
Allowance
for doubtful accounts
|
89
|
166
|
114
|
--
|
141
|
|||||||||||
|
Allowance
for inventory obsolescence
|
78
|
350
|
340
|
--
|
88
|
|||||||||||
|
Deferred
tax valuation allowance
|
1,419
|
325
|
--
|
--
|
1,744
|
|||||||||||
|
Pecos
returns reserve
|
4,104
|
--
|
2,755
|
--
|
1,349
|
|||||||||||
(1) As
a
result of the acquisition of Dental Concepts, LLC, the Company recorded
allowance for sales returns, promotional allowances and bad debts
in purchase
accounting.
(2) As
a
result of the acquisition of Bonita Bay and Vetco, the Company recorded
allowances for doubtful accounts and inventory obsolescence in purchase
accounting.
(3) As
a
result of the acquisition of Spic and Span, the Company recorded
reserves for
sales returns and allowances for doubtful accounts and inventory
obsolescence in
purchase accounting.
(4) As
a
result of the business combination of Medtech and Denorex, the Company
determined that it would probably be able to utilize the deferred
tax assets for
which a valuation allowance had previously been established. Accordingly,
the
Company did not record a valuation allowance in purchase
accounting.
F-79
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed
on its
behalf by the undersigned, thereunto duly authorized.
PRESTIGE
BRANDS
HOLDINGS, INC.
By:
/s/
PETER
J. ANDERSON
Name:
Peter
J.
Anderson
Title:
Chief
Financial Officer
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been
signed below by the following persons on behalf of the registrant
in the
capacities and on the dates indicated.
|
Signature
|
|
Title
|
Date
|
|
|
/s/
PETER C. MANN
|
|
Chairman
of the Board
|
June
14, 2006
|
|
|
Peter
C. Mann
|
|
|||
|
/s/
FRANK P. PALANTONI
|
Director,
President and Chief Executive Officer
|
June
14, 2006
|
||
|
Frank
P. Palantoni
|
(Principal
Executive Officer)
|
|||
|
/s/
PETER J. ANDERSON
|
|
Chief
Financial Officer
|
June
14, 2006
|
|
|
Peter
J. Anderson
|
|
(Principal
Financial and Accounting Officer)
|
||
|
/s/
L. DICK BUELL
|
|
Director
|
June
14, 2006
|
|
|
L.
Dick Buell
|
|
|
||
|
/s/
JOHN E. BYOM
|
Director
|
June
14, 2006
|
||
|
John
E. Byom
|
||||
|
/s/
GARY E. COSTLEY
|
|
Director
|
June
14, 2006
|
|
|
Gary
E. Costley
|
|
|
||
|
/s/
DAVID A. DONNINI
|
|
Director
|
June
14, 2006
|
|
|
David
A. Donnini
|
|
|
||
|
/s/
RONALD B. GORDON
|
|
Director
|
June
14, 2006
|
|
|
Ronald
B. Gordon
|
|
|
||
|
/s/
VINCENT J. HEMMER
|
|
Director
|
June
14, 2006
|
|
|
Vincent
J. Hemmer
|
|
|
||
|
/s/
PATRICK M. LONERGAN
|
|
Director
|
June
14, 2006
|
|
|
Patrick
M. Lonergan
|
|
|
||
|
/s/
RAYMOND P. SILCOCK
|
Director
|
June
14, 2006
|
||
|
Raymond
P. Silcock
|
-52-
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed
on its
behalf by the undersigned, thereunto duly authorized.
PRESTIGE
BRANDS
INTERNATIONAL, LLC
By: /s/
PETER
J. ANDERSON
Name:
Peter
J.
Anderson
Title:
Chief Financial Officer
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been
signed below by the following persons on behalf of the registrant
in the
capacities and on the dates indicated.
|
Signature
|
|
Title
|
Date
|
|
|
/s/
FRANK P. PALANTONI
|
Manager
and President
|
June
14, 2006
|
||
|
Frank
P. Palantoni
|
(Principal
Executive Officer)
|
|||
|
/s/
PETER J. ANDERSON
|
|
Manager
and Chief Financial Officer
|
June
14, 2006
|
|
|
Peter
J. Anderson
|
|
(Principal
Financial and Accounting Officer)
|
||
|
/s/
CHARLES N. JOLLY
|
|
Manager
|
June
14, 2006
|
|
|
Charles
N. Jolly
|
|
|
-53-
EXHIBIT INDEX
| EXHIBIT NO. | DESCRIPTION | |
|
1.1
|
Form
of Underwriting Agreement (filed as Exhibit 1.1 to Prestige
Brands
Holdings, Inc.’s Form S-1/A filed on February 8,
2005).+
|
|
|
2.1
|
Asset
Sale and Purchase Agreement, dated July 22, 2005, by and among
Reckitt Benckiser Inc., Reckitt Benckiser (Canada) Inc.,
Prestige Brands
Holdings, Inc. and The Spic and Span Company (filed as Exhibit
2.1 to
Prestige Brands Holdings, Inc.’s Form 8-K filed on July 28,
2005).+
|
|
|
2.2
|
Unit
Purchase Agreement, dated as of November 9, 2005, by
and between Prestige
Brands Holdings, Inc., and each of Dental Concepts, LLC,
Richard Gaccione,
Combined Consultants DBPT Gordon Wade, Douglas A.P. Hamilton,
Islandia
L.P., George O’Neill, Abby O’Neill, Michael Porter, Marc Cole and Michael
Lesser (filed as Exhibit 10.1 to Prestige Brands Holdings,
Inc.’s Form
10-Q filed on February 14, 2006).+
|
|
|
3.1
|
|
Amended
and Restated Certificate of Incorporation of Prestige
Brands
Holdings, Inc. (filed
as Exhibit 3.1 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
February 8, 2005).+
|
|
3.2
|
|
Amended
and Restated Bylaws of Prestige Brands Holdings, Inc. (filed
as Exhibit 3.2 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
February 8, 2005).+
|
|
3.3
|
|
Certificate
of Formation of Prestige Brands International, LLC (filed
as Exhibit 3.3 to Prestige Brands, Inc.’s Form S-4 filed on July 6,
2004).+
|
|
3.4
|
|
Limited
Liability Company Agreement of Prestige Brands International, LLC
(filed
as Exhibit 3.4 to Prestige Brands, Inc.’s Form S-4 filed on July 6,
2004).+
|
|
4.1
|
|
Form of
stock certificate for common stock (filed
as Exhibit 4.1 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
January 26, 2005).+
|
|
4.2
|
|
Indenture,
dated April 6, 2004, among Prestige Brands, Inc., each Guarantor
thereto and U.S. Bank National Association, as Trustee
(filed
as Exhibit 4.1 to Prestige Brands, Inc.’s Form S-4 filed on July 6,
2004).+
|
|
4.3
|
Form
of 9¼% Senior Subordinated Note due 2012 (contained in Exhibit
4.2 to this
Annual Report on Form 10-K).+
|
|
|
10.1
|
|
Credit
Agreement, dated April 6, 2004, among Prestige Brands, Inc.,
Prestige Brands International, LLC, the Lenders thereto,
the Issuers
thereto, Citicorp North America, Inc. as Administrative Agent and as
Tranche C Agent, Bank of America, N.A. as Syndication Agent,
and
Merrill Lynch Capital, a division of Merrill Lynch Business
Financial
Services Inc., as Documentation Agent (filed
as Exhibit 10.1 to Prestige Brands Holdings, Inc.’s Form S-1 filed on July
28, 2004).+
|
|
10.2
|
|
Form of
Amendment No. 1 to the Credit Agreement, dated as of April 6,
2004, among Prestige Brands, Inc., Prestige Brands International,
LLC, the Lenders thereto, the Issuers thereto, Citicorp
North
America, Inc., as administrative agent, Bank of America, N.A.,
as
syndication agent, and Merrill Lynch Capital, a division
of Merrill Lynch
Business Financial Services, Inc., as documentation agent
(filed
as Exhibit 10.1.1 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
February 8, 2005).+
|
|
10.3
|
|
Pledge
and Security Agreement, dated April 6, 2004, by Prestige
Brands, Inc. and each of the Grantors party thereto, in favor
of
Citicorp North America, Inc. as Administrative Agent and
Tranche C Agent (filed
as Exhibit 10.2 to Prestige Brands Holdings, Inc.’s Form S-1 filed on July
28, 2004).+
|
|
10.4
|
|
Intercreditor
Agreement, dated April 6, 2004, between Citicorp North
America, Inc. as Administrative Agent and as Tranche C Agent,
Prestige Brands, Inc., Prestige Brands International, LLC and each of
the Subsidiary Guarantors thereto (filed
as Exhibit 10.3 to Prestige Brands Holdings, Inc.’s Form S-1 filed on July
28, 2004).+
|
|
10.5
|
Purchase
Agreement, dated March 30, 2004, among Prestige Brands, Inc., each
Guarantor thereto and Citigroup Global Markets Inc. as
Representative of
the Initial Purchasers (filed
as Exhibit 10.5 to Prestige Brands Holdings, Inc.’s Form S-1 filed on July
28, 2004).+
|
|
| 10.6 | Registration
Rights Agreement, dated April 6, 2004, among Prestige
Brands, Inc., each Guarantor thereto,
|
-54-
|
|
Citigroup
Global Markets Inc. as Representative of the Initial Purchasers
(filed
as Exhibit 10.6 to Prestige Brands Holdings, Inc.’s Form S-1 filed on July
28, 2004).+
|
|
|
10.7
|
Unit
Purchase Agreement, dated February 6, 2004, by and among
Medtech/Denorex, LLC, GTCR Fund VIII, L.P., GTCR Fund VIII/B,
L.P., GTCR Co-Invest II, L.P. and the TCW/Crescent Purchasers thereto
(filed
as Exhibit 10.8 to Prestige Brands Holdings, Inc.’s Form S-1 filed on July
28, 2004).+
|
|
|
10.8
|
First
Amendment, Acknowledgment and Supplement to Unit Purchase
Agreement, dated
April 6, 2004, to the Unit Purchase Agreement, dated February 6,
2004, by and among Medtech/Denorex, LLC, GTCR Fund VIII, L.P., GTCR
Fund VIII/B, L.P., GTCR Co-Invest II, L.P. and the TCW/Crescent
Purchasers thereto (filed
as Exhibit 10.9 to Prestige Brands Holdings, Inc.’s Form S-1 filed on July
28, 2004).+
|
|
|
10.9
|
Second
Amendment, Acknowledgement and Supplement to Unit Purchase
Agreement,
dated April 6, 2004, to the Unit Purchase Agreement, dated
February 6, 2004, by and among Medtech/Denorex, LLC, GTCR
Fund VIII, L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II,
L.P. and the TCW/Crescent Purchasers thereto as amended
by the First
Amendment, Acknowledgement and Supplement to Unit Purchase
Agreement,
dated April 6, 2004 (filed
as Exhibit 10.10 to Prestige Brands Holdings, Inc.’s Form S-1 filed on
July 28, 2004).+
|
|
|
10.10
|
Securityholders
Agreement, dated February 6, 2004, among Medtech/Denorex, LLC, GTCR
Fund VIII, L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II,
L.P., GTCR Capital Partners, L.P., the TCW/Crescent Purchasers
and the
TCW/Crescent Lenders thereto, each Executive thereto
and each of the Other
Securityholders thereto (filed
as Exhibit 10.11 to Prestige Brands Holdings, Inc.’s Form S-1 filed on
July 28, 2004).+
|
|
|
10.11
|
First
Amendment and Acknowledgement to Securityholders Agreement,
dated
April 6, 2004, to the Securityholders Agreement, dated
February 6, 2004, among Medtech/Denorex, LLC, GTCR Fund VIII,
L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II, L.P., GTCR
Capital Partners, L.P., the TCW/Crescent Purchasers and
the TCW/Crescent
Lenders thereto, each Executive thereto and each of the
Other
Securityholders thereto (filed
as Exhibit 10.12 to Prestige Brands Holdings, Inc.’s Form S-1 filed on
July 28, 2004).+
|
|
|
10.12
|
Registration
Rights Agreement, dated February 6, 2004, among Medtech/Denorex, LLC,
GTCR Fund VIII, L.P., GTCR Fund VIII/B, L.P., GTCR
Co-Invest II, L.P., GTCR Capital Partners, L.P., the TCW/Crescent
Purchasers and the TCW/Crescent Lenders thereto, each
Executive thereto
and each of the Other Securityholders thereto (filed
as Exhibit 10.13 to Prestige Brands Holdings, Inc.’s Form S-1 filed on
July 28, 2004).+
|
|
|
10.13
|
First
Amendment and Acknowledgement to Registration Rights
Agreement, dated
April 6, 2004, to the Registration Rights Agreement, dated
February 6, 2004, among Medtech/Denorex, LLC, GTCR Fund VIII,
L.P., GTCR Fund VIII/B, L.P., GTCR Co-Invest II, L.P., GTCR
Capital Partners, L.P., the TCW/Crescent Purchasers and
the TCW/Crescent
Lenders thereto, each Executive thereto and each of the
Other
Securityholders thereto (filed
as Exhibit 10.14 to Prestige Brands Holdings, Inc.’s Form S-1 filed on
July 28, 2004).+
|
|
|
10.14
|
Senior
Preferred Investor Rights Agreement, dated March 5, 2004, among
Medtech/Denorex, LLC, GTCR Fund VIII, L.P., TSG3 L.P., J. Gary
Shansby, Charles H. Esserman, Michael L. Mauze, James L.
O’Hara and each Subsequent Securityholder thereto (filed
as Exhibit 10.15 to Prestige Brands Holdings, Inc.’s Form S-1 filed on
July 28, 2004).+
|
|
|
10.15
|
Amended
and Restated Professional Services Agreement, dated April 6, 2004, by
and between GTCR Golder Rauner II, L.L.C. and Prestige
Brands, Inc. (filed
as Exhibit 10.16 to Prestige Brands Holdings, Inc.’s Form S-1 filed on
July 28, 2004).+
|
|
|
10.16
|
Omnibus
Consent and Amendment to Securityholders Agreement, Registration
Rights
Agreement, Senior Management Agreements and Unit Purchase
Agreement, dated
as of July 6, 2004 (filed
as Exhibit 10.29.1 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
November 12, 2004).+
|
|
|
10.17
|
Form of
Amended and Restated Senior Management Agreement, dated
as of January 28,
2005, by and among Prestige International Holdings, LLC, Prestige
Brands Holdings, Inc., Prestige Brands, Inc., and Peter J.
Anderson (filed
as Exhibit 10.29.7 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
January 26, 2005).+@
|
-55-
|
10.18
|
Form of
Amended and Restated Senior Management Agreement,
dated as of January 28,
2005, by and among Prestige International Holdings, LLC, Prestige
Brands Holdings, Inc., Prestige Brands, Inc., and Gerald F.
Butler (filed
as Exhibit 10.29.8 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
January 26, 2005).+@
|
|
|
10.19
|
Form of
Amended and Restated Senior Management Agreement,
dated as of January 28,
2005, by and among Prestige International Holdings, LLC, Prestige
Brands Holdings, Inc., Prestige Brands, Inc., and Michael A.
Fink (filed
as Exhibit 10.29.9 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
January 26, 2005).+@
|
|
|
10.20
|
Form of
Amended and Restated Senior Management Agreement,
dated as of January 28,
2005, by and among Prestige International Holdings,
LLC, Prestige Brands
Holdings, Inc., Prestige Brands, Inc., and Charles Shrank
(filed
as Exhibit 10.29.10 to Prestige Brands Holdings,
Inc.’s Form S-1/A filed
on January 26, 2005).+@
|
|
|
10.21
|
Form of
Amended and Restated Senior Management Agreement,
dated as of January 28,
2005, by and among Prestige International Holdings,
LLC, Prestige Brands
Holdings, Inc., Prestige Brands, Inc., and Eric M. Millar
(filed
as Exhibit 10.29.11 to Prestige Brands Holdings,
Inc.’s Form S-1/A filed
on January 26, 2005).+@
|
|
|
10.22
|
Distribution
Agreement, dated April 24, 2003, by and between Medtech
Holdings, Inc. and OraSure Technologies, Inc. (filed
as Exhibit 10.27 to Prestige Brands, Inc.’s Form S-4/A filed on August 4,
2004).+**
|
|
|
10.23
|
License
Agreement, dated June 2, 2003, between Zengen, Inc. and Prestige
Brands International, Inc. (filed
as Exhibit 10.28 to Prestige Brands, Inc.’s Form S-4/A filed on August 4,
2004).+**
|
|
|
10.24
|
Patent
and Technology License Agreement, dated October 2, 2001, between The
Procter & Gamble Company and Prestige Brands
International, Inc. (filed
as Exhibit 10.29 to Prestige Brands, Inc.’s Form S-4/A filed on August 19,
2004).+**
|
|
|
10.25
|
Amendment,
dated April 30, 2003, to the Patent and Technology License Agreement,
dated October 2, 2001, between The Procter & Gamble Company
and Prestige Brands International, Inc. (filed
as Exhibit 10.30 to Prestige Brands, Inc.’s Form S-4/A filed on August 19,
2004).+
|
|
|
10.26
|
Contract
Manufacturing Agreement, dated February 1, 2001, among The
Procter & Gamble Manufacturing Company, P&G International
Operations SA, Prestige Brands International, Inc. and Prestige
Brands International (Canada) Corp. (filed
as Exhibit 10.31 to Prestige Brands, Inc.’s Form S-4/A filed on August 4,
2004).+**
|
|
|
10.27
|
Manufacturing
Agreement, dated December 30, 2002, by and between Prestige Brands
International, Inc. and Abbott Laboratories (filed
as Exhibit 10.32 to Prestige Brands, Inc.’s Form S-4/A filed on August 4,
2004).+**
|
|
|
10.28
|
Amendment
No. 4 and Restatement of Contract Manufacturing Agreement,
dated
May 1, 2002, by and between The Procter & Gamble Company and
Prestige Brands International, Inc. (filed
as Exhibit 10.33 to Prestige Brands, Inc.’s Form S-4/A filed on August 4,
2004).+**
|
|
|
10.29
|
Letter
Agreement, dated April 15, 2004, between Prestige Brands, Inc.
and Carrafiello Diehl & Associates, Inc. (filed
as Exhibit 10.34 to Prestige Brands, Inc.’s Form S-4/A filed on August 4,
2004).+**
|
|
|
10.30
|
Prestige
Brands Holdings, Inc. 2005 Long-Term Equity Incentive Plan
(filed
as Exhibit 10.38 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
January 26, 2005).+#
|
|
|
10.31
|
Form
of Restricted Stock Grant Agreement (filed
as Exhibit 10.1 to Prestige Brands Holdings, Inc.’s Form 10-Q filed on
August 9, 2005).+#
|
|
|
10.32
|
Form of
Exchange Agreement by and among Prestige Brands Holdings, Inc.,
Prestige International Holdings, LLC and the common unit holders
listed on the signature pages thereto (filed
as Exhibit 10.39 to Prestige Brands Holdings, Inc.’s Form S-1/A filed on
January 26, 2005).+
|
|
|
10.33
|
Storage
and Handling Agreement dated April 13, 2005 by and between
Warehousing Specialists, Inc. and Prestige Brands, Inc. (filed
as Exhibit 10.1 to Prestige Brands Holdings, Inc.’s Form 8-K filed on
April 15, 2005).+
|
|
|
10.34
|
Transportation
Management Agreement dated April 13, 2005 by and between Prestige
Brands, Inc. and Nationwide Logistics, Inc. (filed as Exhibit 10.2 to
Prestige Brands Holdings, Inc.’s Form 8-K filed on April 15,
2005).+
|
-56-
|
10.35
|
Executive
Employment Agreement, dated as of January 17, 2006,
between Prestige
Brands Holdings, Inc. and Charles N. Jolly.*@
|
|
|
10.36
|
Executive
Employment Agreement, dated as of August 4, 2005, by
and among Prestige
Brands Holdings, Inc., Prestige Brands, Inc. and Frank
P. Palantoni (filed
as Exhibit 99.2 to Prestige Brands Holdings, Inc.’s Form 8-K filed on
August 9, 2005).+@
|
|
|
10.37
|
Trademark
License and Option to Purchase Agreement, dated September
8, 2005, by and
among The Procter & Gamble Company and Prestige Brands Holdings, Inc.
(filed as Exhibit 10.1 to Prestige Brands Holdings,
Inc.’s Form 8-K filed
on September 12, 2005).+
|
|
|
10.38
|
Senior
Management Agreement, dated as of March 21, 2006, between
Prestige Brands
Holdings, Inc., Prestige Brands, Inc. and Peter C.
Mann (filed
as Exhibit 99.1 to Prestige Brands Holdings, Inc.’s Form 8-K filed on
March 23, 2006).+@
|
|
|
21.1
|
Subsidiaries
of the Registrant.*
|
|
|
23.1
|
Consent
of PricewaterhouseCoopers LLP.*
|
|
|
31.1
|
Certification
of Principal Executive Officer of Prestige Brands Holdings,
Inc. pursuant
to Rule 13a-14(a) of the Securities Exchange Act of
1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
|
|
|
31.2
|
Certification
of Principal Financial Officer of Prestige Brands Holdings,
Inc. pursuant
to Rule 13a-14(a) of the Securities Exchange Act of
1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.*
|
|
|
31.3
|
Certification
of Principal Executive Officer of Prestige
Brands International, LLC
pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of
2002.*
|
|
|
31.4
|
Certification
of Principal Financial Officer of Prestige
Brands International, LLC
pursuant to Rule 13a-14(a) of the Securities Exchange
Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of
2002.*
|
|
|
32.1
|
Certification
of Principal Executive Officer of Prestige Brands Holdings,
Inc. pursuant
to Rule 13a-14(b) and Section 1350 of Chapter 63 of
Title 18 of the United
States Code, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act
of 2002.*
|
|
|
32.2
|
Certification
of Principal Financial Officer of Prestige Brands Holdings,
Inc. pursuant
to Rule 13a-14(b) and Section 1350 of Chapter 63 of
Title 18 of the United
States Code, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act
of 2002.*
|
|
|
32.3
|
Certification
of Principal Executive Officer of Prestige Brands International,
LLC
pursuant to Rule 13a-14(b) and Section 1350 of Chapter
63 of Title 18 of
the United States Code, as adopted pursuant to Section
906 of the
Sarbanes-Oxley Act of 2002.*
|
|
|
32.4
|
Certification
of Principal Financial Officer of Prestige Brands International,
LLC
pursuant to Rule 13a-14(b) and Section 1350 of Chapter
63 of Title 18 of
the United States Code, as adopted pursuant to Section
906 of the
Sarbanes-Oxley Act of
2002.*
|
* Filed
herewith.
|
|
|
**
Certain confidential portions have been omitted pursuant to
a
confidential treatment request separately filed with the Securities
and Exchange
Commission.
+
Incorporated
herein by reference.
@
Represents
a management contract.
#
Represents
a compensatory plan.
-57-
EXHIBIT 10.35
Executive
Employment Agreement
1. Employment.
Employer agrees to employ Executive and Executive accepts such employment for
the period effective as of August 1, 2005 and ending upon his separation
pursuant to Section 1(c) hereof (the “Employment
Period”).
(a) Position
and Duties.
(i) During
the Employment Period, Executive shall serve as the Secretary & General
Counsel of Employer and shall have the normal duties, responsibilities and
authority implied by such position, subject to the power of the Chief Executive
Officer of Employer and the Board to expand or limit such duties,
responsibilities and authority and to override such actions.
(ii) Executive
shall report to the Chief Executive Officer of Employer, and Executive shall
devote his best efforts and his full business time and attention to the business
and affairs of the Company, Employer and their Subsidiaries.
(b) Salary,
Bonus and Benefits. During the Employment Period, Employer will pay
Executive a base salary of $300,000 per annum (the “Annual Base
Salary”). In addition, the Executive shall be eligible for and participate
in the Annual Incentive Compensation Plan (the “Annual Bonus”) under which the
Executive shall be eligible for an annual Target Bonus payment of 45% of annual
base salary with a maximum of 90% of annual salary. All provisions of the Annual
Bonus as approved by the Board of Directors will apply. During fiscal year
beginning April 1, 2005, the Board shall develop a new Long Term Incentive
Compensation program which may incorporate subjective and/or objective criteria
for bonus achievement, which program will be proportionately applicable to
Executive as determined by the Board. In addition, during the Employment Period,
Executive will be entitled to such other benefits approved by the Board and
made
available to the senior management of the Company, Employer and their
Subsidiaries, which shall include vacation time (in an amount consistent with
past practice) and medical, dental, life and disability insurance. The Board,
on
a basis consistent with past practice, shall review the Annual Base Salary
of
Executive and may increase the Annual Base Salary by such amount as the Board,
in its sole discretion, shall deem appropriate. The term “Annual Base Salary” as
used in this Agreement shall refer to the Annual Base Salary as it may be so
increased.
(c) Separation.
The Employment Period will continue until (i) Executive’s death, disability or
resignation from employment with the Company, Employer and their respective
Subsidiaries or (ii) the Company, Employer and their respective Subsidiaries
decide to terminate Executive’s employment with or without Cause. If (A)
Executive’s employment is terminated without Cause pursuant to clause (ii) above
or (B) Executive resigns from employment with the Company, Employer or any
of
their respective Subsidiaries for Good Reason, then during the period commencing
on the date of termination of the Employment Period and ending on the first
anniversary of the date of termination (the “Severance Period”), Employer
shall pay to Executive, in equal installments on the Employer’s regular salary
payment dates, an aggregate amount equal to (I) his Annual Base Salary, plus
(II) an amount equal to the annual bonus, if any, paid or payable to Executive
by Employer for the last fiscal year ended prior to the date of termination.
In
addition, if Executive is entitled on the date of termination to coverage under
the medical and prescription portions of the Welfare Plans, such coverage
shall
continue
for Executive and Executive’s covered dependents for a
period ending on the first anniversary of the date of termination at the
active employee cost payable by Executive
with respect to those costs paid by Executive prior to the date of termination;
provided, that this coverage will count towards the depletion of any
continued health care coverage rights that Executive and Executive’s dependents
may have pursuant to the Consolidated Omnibus Budget Reconciliation Act of
1985,
as amended (“COBRA”); provided further, that Executive’s or
Executive’s covered dependents’ rights to continued health care coverage
pursuant to this Section 1(c) shall terminate at the time
Executive or Executive’s covered dependents become covered, as described in
COBRA, under another group health plan, and shall also terminate as of the
date
Employer ceases to provide coverage to its senior executives generally under
any
such Welfare Plan. Notwithstanding the foregoing, (I) Executive shall not
be
entitled to receive any payments or benefits pursuant to this Section
11(c) unless Executive has executed and delivered to Employer a
general release in form and substance satisfactory to Employer and (II)
Executive shall be entitled to receive such payments and benefits only so
long
as Executive has not breached the provisions of Section 2 or Section
3 hereof. The release described in the foregoing sentence shall not require
Executive to release any claims for any vested employee benefits, workers
compensation benefits covered by insurance or self-insurance, claims to
indemnification to which Executive may be entitled under the Company’s or its
Subsidiaries’ certificate(s) of incorporation, by-laws or under any of the
Company’s or its Subsidiaries’ directors or officers insurance policy(ies) or
applicable law, or equity claims to contribution from the Company or its
Subsidiaries or any other Person to which Executive is entitled as a matter
of
law in respect of any claim made against Executive for an alleged act or
omission in Executive’s official capacity and within the scope of Executive’s
duties as an officer, director or employee of the Company or its Subsidiaries.
Not later than eighteen (18) months following the termination of Executive’s
employment, the Company and its Subsidiaries for which the Executive has
acted
in the capacity of a senior manager, shall sign and deliver to Executive
a
release of claims that the Company or its Subsidiaries has against Executive;
providedthat, such release shall not release any claims that the
Company or its Subsidiaries commenced prior to the date of the release(s),
any
claims relating to matters actively concealed by Executive, any claims to
contribution from Executive to which the Company or its Subsidiaries are
entitled as a matter of law or any claims arising out of mistaken
indemnification by the Company or any of its Subsidiaries. Except as otherwise
provided in this Section 1(c) or in the Employer’s employee benefit plans
or as otherwise required by applicable law, Executive shall not be entitled
to
any other salary, compensation or benefits after termination of Executive’s
employment with Employer.
2. Confidential
Information.
(a) Obligation
to Maintain Confidentiality. Executive acknowledges that the
information, observations and data (including trade secrets) obtained by him
during the course of his performance under this Agreement concerning the
business or affairs of the Company, Employer and their respective Subsidiaries
and Affiliates (“Confidential Information”) are the property of the
Company, Employer, or such Subsidiaries and Affiliates, including information
concerning acquisition opportunities in or reasonably related to the Company’s
and Employer’s business or industry of which Executive becomes aware during the
Employment Period. Therefore, Executive agrees that he will not disclose to
any
unauthorized Person or use for his own account (for his commercial advantage
or
otherwise) any Confidential Information without the Board’s written consent,
unless and to the extent that the Confidential Information, (i) becomes
generally
known
to
and available for use by the public other than as a result of Executive’s acts
or omissions to act, (ii) was known to Executive prior to Executive’s employment
with Employer, the Company or any of their Subsidiaries and Affiliates or (iii)
is required to be disclosed pursuant to any applicable law, court order or
other
governmental decree. Executive shall deliver to the Company at a Separation,
or
at any other time the Company may request, all memoranda, notes, plans, records,
reports, computer tapes, printouts and software and other documents and data
(and copies thereof) relating to the Confidential Information, Work Product
(as
defined below) or the business of the Company, Employer and their respective
Subsidiaries and Affiliates (including, without limitation, all acquisition
prospects, lists and contact information) which he may then possess or have
under his control.
(b) Ownership
of Property. Executive acknowledges that all discoveries, concepts,
ideas, inventions, innovations, improvements, developments, methods, processes,
programs, designs, analyses, drawings, reports, patent applications,
copyrightable work and mask work (whether or not including any Confidential
Information) and all registrations or applications related thereto, all other
proprietary information and all similar or related information (whether or
not
patentable) that relate to the Company’s, Employer’s or any of their respective
Subsidiaries’ or Affiliates’ actual or anticipated business, research and
development, or existing or future products or services and that are conceived,
developed, contributed to, made, or reduced to practice by Executive (either
solely or jointly with others) while employed by the Company, Employer or any
of
their respective Subsidiaries or Affiliates (including any of the foregoing
that
constitutes any proprietary information or records) (“Work Product”)
belonging to the Company, Employer or such Subsidiary or Affiliate and Executive
hereby assigns, and agrees to assign, all of the above Work Product to the
Company, Employer or to such Subsidiary or Affiliate. Any copyrightable work
prepared in whole or in part by Executive in the course of his work for any
of
the foregoing entities shall be deemed a “work made for hire” under the
copyright laws, and the Company, Employer or such Subsidiary or Affiliate shall
own all rights therein. To the extent that any such copyrightable work is not
a
“work made for hire,” Executive hereby assigns and agrees to assign to the
Company, Employer or such Subsidiary or Affiliate all right, title, and
interest, including without limitation, copyright in and to such copyrightable
work. Executive shall promptly disclose such Work Product and copyrightable
work
to the Board and perform all actions reasonably requested by the Board (whether
during or after the Employment Period) to establish and confirm the Company’s,
Employer’s or such Subsidiary’s or Affiliate’s ownership (including, without
limitation, assignments, consents, powers of attorney, and other
instruments).
(c) Third
Party Information. Executive understands that the Company, Employer
and their respective Subsidiaries and Affiliates will receive from third parties
confidential or proprietary information (“Third Party Information”)
subject to a duty on the Company’s, Employer’s and their respective
Subsidiaries’ and Affiliates’ part to maintain the confidentiality of such
information and to use it only for certain limited purposes. During the
Employment Period and thereafter, and without in any way limiting the provisions
of Section 2(a) above, Executive will hold Third Party Information
in the strictest confidence and will not disclose to anyone (other than
personnel and consultants of the Company, Employer or their respective
Subsidiaries and Affiliates who need to know such information in connection
with
their work for the Company, Employer or any of their respective Subsidiaries
and
Affiliates) or use, except in connection with his work for the Company, Employer
or any of their respective Subsidiaries and Affiliates,
Third
Party Information unless expressly authorized by a member of the Board (other
than himself if Executive is on the Board) in writing.
(d) Use
of Information of Prior Employers. During the Employment Period and
thereafter, Executive will not improperly use or disclose any confidential
information or trade secrets, if any, of any former employers or any other
Person to whom Executive has an obligation of confidentiality, and will not
bring onto the premises of the Company, Employer or any of their respective
Subsidiaries or Affiliates any unpublished documents or any property belonging
to any former employer or any other Person to whom Executive has an obligation
of confidentiality unless consented to in writing by the former employer or
Person. Executive will use in the performance of his duties only information
which is (i) generally known and used by persons with training and experience
comparable to Executive’s and which is (x) common knowledge in the industry or
(y) otherwise legally in the public domain, (ii) otherwise provided or developed
by the Company, Employer or any of their respective Subsidiaries or Affiliates
or (iii) in the case of materials, property or information belonging to any
former employer or other Person to whom Executive has an obligation of
confidentiality, approved for such use in writing by such former employer or
Person.
3. Non-competition
and No Solicitation. Executive acknowledges that in the course of his
employment with Employer he will become familiar with the Company’s, Employer’s
and their respective Subsidiaries’ trade secrets and with other confidential
information concerning the Company, Employer and such Subsidiaries and that
his
services will be of special, unique and extraordinary value to the Company,
Employer and such Subsidiaries. Therefore, Executive agrees that:
(a) Non-competition.
During the Employment Period and also during the period commencing on the date
of termination of the Employment Period and ending on the first anniversary
of
the date of termination, he shall not without the express written consent of
the
Company, anywhere in the United States, directly or indirectly, own, manage,
control, participate in, consult with, render services for, or in any manner
engage in any business (i) competing with a brand of the Company, Employer,
Medtech Products, Inc., The Denorex Company, The Spic and Span Company, The
Comet Products Corporation, Prestige Brands International, Inc., Vetco, Inc.,
or
any business acquired by such Persons, or any Subsidiaries of such Persons,
representing 10% or more of the consolidated revenues or EBITDA of the Company
and its Subsidiaries for the trailing 12 months ending on the last day of the
last completed calendar month immediately preceding the date of termination
of
the Employment Period (collectively “The Prestige Companies”) or (ii) in which
The Prestige Companies have conducted discussions or has requested and received
information relating to the acquisition of such business by such Person (x)
within one year prior to the Separation and (y) during the Severance Period,
if
any. Nothing herein shall prohibit Executive from being a passive owner of
not
more than 2% of the outstanding stock of any class of a corporation that is
publicly traded, so long as Executive has no active participation in the
business of such corporation.
(b) No
solicitation. During the Employment Period and also during the period
commencing on the date of termination of the Employment Period and ending on
the
first anniversary of the date of termination, Executive shall not directly
or
indirectly through another entity (i) induce or attempt to induce any employee
of The Prestige Companies to leave the employ of the Company, Employer or any
subsidiary, or in any
way
interfere with the relationship between The Prestige Companies and any employee
thereof, (ii) hire any person who was an employee of The Prestige Companies
within 180 days after such person ceased to be an employee of the Company,
Employer or any of their respective Subsidiaries (provided,
however, that such restriction shall not apply for a particular
employee if the Company has provided its written consent to such hire, which
consent, in the case of any person who was not a key employee of The Prestige
Companies shall not be unreasonably withheld), (iii) induce or attempt to induce
any customer, supplier, licensee or other business relation of The Prestige
Companies to cease doing business with The Prestige Companies or in any way
interfere with the relationship between any such customer, supplier, licensee
or
business relation and The Prestige Companies or (iv) directly or indirectly
acquire or attempt to acquire an interest in any business relating to the
business of The Prestige Companies and with which The Prestige Companies has
conducted discussions or has requested and received information relating to
the
acquisition of such business by The Prestige Companies in the two year period
immediately preceding a Separation.
(c) Enforcement.
If, at the time of enforcement of Section 2 or this Section 3, a
court holds that the restrictions stated herein are unreasonable under
circumstances then existing, the parties hereto agree that the maximum duration,
scope or geographical area reasonable under such circumstances shall be
substituted for the stated period, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum
duration, scope and area permitted by law. Because Executive’s services are
unique and because Executive has access to Confidential Information, the parties
hereto agree that money damages would be an inadequate remedy for any breach
of
this Agreement. Therefore, in the event of a breach or threatened breach of
this
Agreement, the Company, Employer, their respective Subsidiaries or their
successors or assigns may, in addition to other rights and remedies existing
in
their favor, apply to any court of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce, or prevent
any violations of, the provisions hereof (without posting a bond or other
security).
(d) Additional
Acknowledgments. Executive acknowledges that the provisions of this
Section 1 are in consideration of: (i) employment with the Employer, (ii)
the prospective issuance of Securities by the Company pursuant to the Long
Term
Incentive Compensation Program and (iii) additional good and valuable
consideration as set forth in this Agreement. In addition, Executive agrees
and
acknowledges that the restrictions contained in Section 2 and this
Section 3 do not preclude Executive from earning a livelihood, nor do
they unreasonably impose limitations on Executive’s ability to earn a living. In
addition, Executive acknowledges (i) that the business of the Company, Employer
and their respective Subsidiaries will be conducted throughout the United
States, (ii) notwithstanding the state of incorporation or principal office
of
the Company, Employer or any of their respective Subsidiaries, or any of their
respective executives or employees (including the Executive), it is expected
that the Company and Employer will have business activities and have valuable
business relationships within its industry throughout the United States and
(iii) as part of his responsibilities, Executive will be traveling throughout
the United States in furtherance of Employer’s business and its relationships.
Executive agrees and acknowledges that the potential harm to the Company and
Employer of the non-enforcement of Section 2 and this Section 3
outweighs any potential harm to Executive of its enforcement by injunction
or
otherwise. Executive acknowledges that he has carefully read this Agreement
and
has given careful consideration to the restraints imposed upon Executive by
this
Agreement, and is in full
accord
as
to their necessity for the reasonable and proper protection of confidential
and
proprietary information of the Company, Employer and their Subsidiaries now
existing or to be developed in the future. Executive expressly acknowledges
and
agrees that each and every restraint imposed by this Agreement is reasonable
with respect to subject matter, time period and geographical area.
IN
WITNESS WHEREOF, the parties hereto have executed this Executive Employment
Agreement on this 17th day of January, 2006.
<
font id="TAB2" style="LETTER-SPACING: 9pt">
|
PRESTIGE BRANDS HOLDINGS,
INC.
|
|
By: /s/ Peter C.
Mann
|
|
Name: Peter C. Mann
|
|
Title: Chief Executive
Officer
|
|
|
|
/s/ Charles N.
Jolly
|
|
Charles N.
Jolly
|
DEFINITIONS
"Cause"
is defined as (i) your willful and continued failure to substantially perform
your duties with the Company (other than any such failure resulting from your
incapacity due to physical or mental illness) that has not been cured within
10
days after a written demand for substantial performance is delivered to you
by
the Board, which demand specifically identifies the manner in which the Board
believes that you have not substantially performed your duties, (ii) the willful
engaging by you in conduct which is demonstrably and materially injurious to
the
Company or its affiliates, monetarily or otherwise, (iii) your conviction (or
plea of nolo contendere) for any felony or any other crime involving dishonesty,
fraud or moral turpitude, (iv) your breach of fiduciary duty to the Company
or
its affiliates, (v) any violation of the Company's policies relating to
compliance with applicable laws which have a material adverse effect on the
Company or its affiliates or (vi) your breach of any restrictive covenant.
For
purposes of clauses (i) and (ii) of this definition, (x) no act, or failure
to
act, on your part shall be deemed "willful" unless done, or omitted to be done,
by you not in good faith and without reasonable belief that your act, or failure
to act, was in the best interest of the Company.
"Good
Reason" is defined as, without your consent, (i) the assignment to you of any
duties inconsistent with your status as the Company's Secretary & General
Counsel or a substantial adverse alteration in the nature or status of the
your
responsibilities, unless the Company has cured such events within 10 business
days after the receipt of written notice thereof from you, (ii) a reduction
in
your annual base salary or target annual bonus percentage, except for
across-the-board salary reductions similarly affecting all senior Company
executives, or (iii) the relocation of the Company's headquarters by more than
30 miles.
Exhibit
21.1
SUBSIDIARIES
LIST
Direct
and Indirect Subsidiaries
of
Prestige Brands Holdings, Inc.
|
Name
|
Jurisdiction
of Incorporation/Organization
|
|
|
Prestige
Brands Holdings, Inc.
|
Delaware
|
|
|
Prestige
Brands International, LLC
|
Delaware
|
|
|
Prestige
Household Holdings, Inc.
|
Delaware
|
|
|
Prestige
Household Brands, Inc.
|
Delaware
|
|
|
The
Comet Products Corporation
|
Delaware
|
|
|
The
Spic and Span Company
|
Delaware
|
|
|
Prestige
Products Holdings, Inc.
|
Delaware
|
|
|
Prestige
Acquisition Holdings, LLC
|
Delaware
|
|
|
Bonita
Bay Holdings, Inc.
|
Virginia
|
|
|
Prestige
Brands Holdings, Inc.
|
Virginia
|
|
|
Prestige
Brands International, Inc.
|
Virginia
|
|
|
Prestige
Brands Financial Corporation
|
Delaware
|
|
|
Medtech
Holdings, Inc.
|
Delaware
|
|
|
Medtech
Products, Inc.
|
Delaware
|
|
|
Pecos
Pharmaceutical, Inc.
|
California
|
|
|
The
Cutex Company
|
Delaware
|
|
|
Prestige
Personal Care Holdings, Inc.
|
Delaware
|
|
|
Prestige
Personal Care, Inc.
|
Delaware
|
|
|
The
Denorex Company
|
Delaware
|
|
|
Vetco,
Inc.
|
New
York
|
|
|
Prestige
International Holdings, LLC
|
Delaware
|
|
|
Prestige
Brands, Inc.
|
Delaware
|
|
|
Prestige
Brands (UK) Limited
|
England
and Wales
|
Exhibit
23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
hereby
consent to the incorporation by reference in the Registration Statement on
Form
S-8 (No. 333-123487) of Prestige Brands Holdings, Inc. of our reports dated
June
10, 2006 relating to the financial statements, financial statement schedule,
management’s assessment of the effectiveness of internal control over financial
reporting and the effectiveness of internal control over financial reporting
of
Prestige Brands Holdings, Inc. (successor basis); and dated June 10, 2006
relating to the combined financial statements and financial statement schedule
of Medtech Holdings, Inc. and The Denorex Company (predecessor basis); all
of
which appear in this Annual Report on Form 10-K.
/s/
PricewaterhouseCoopers LLP
Salt
Lake
City, Utah
June
12,
2006
Exhibit 31.1
CERTIFICATION
I,
Frank
P. Palantoni, certify that:
|
1.
|
I
have reviewed the Annual Report on Form 10-K of Prestige Brands
Holdings, Inc.;
|
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement
of a
material fact or omit to state a material fact necessary to make
the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects
the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
|
4.
|
The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and
internal control over financial reporting (as defined in Exchange
Act
Rules 13a-15(f) and 15(d)-15(f)) for the registrant and
have:
|
|
(a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to
ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being
prepared;
|
|
(b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision,
to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
(c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness
of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation;
and
|
|
(d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely
to
materially affect, the registrant’s internal control over financial
reporting; and
|
|
5.
|
The
registrant’s other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent
functions):
|
|
(a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
|
(b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
|
Date:
June 14, 2006
|
/s/
FRANK P. PALANTONI
|
|
|
Frank
P. Palantoni
|
|
|
President
and Chief Executive
Officer
|
Exhibit
31.2
CERTIFICATION
I,
Peter
J. Anderson, certify that:
1. I
have
reviewed the Annual Report on Form 10-K of Prestige Brands
Holdings, Inc.;
2. Based
on
my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made,
in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on
my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in
Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal control
over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15(d)-15(f)) for the registrant and
have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls
and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b) Designed
such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by
this
report based on such evaluation; and
(d) Disclosed
in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting.
5. The
registrant’s other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) All
significant deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the registrant’s internal control over financial
reporting.
|
Date:
June 14, 2006
|
/s/
PETER J. ANDERSON
|
|
|
Peter
J. Anderson
|
|
|
Chief
Financial
Officer
|
Exhibit 31.3
CERTIFICATION
I,
Frank
P. Palantoni, certify that:
1. I
have
reviewed the Annual Report on Form 10-K of Prestige Brands International,
LLC;
2. Based
on
my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made,
in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on
my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in
Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal control
over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15(d)-15(f)) for the registrant and
have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls
and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b)
Designed
such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by
this
report based on such evaluation; and
(d) disclosed
in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The
registrant’s other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All
significant deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
(b) Any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the registrant’s internal control over financial
reporting.
|
Date:
June 14, 2006
|
/s/
FRANK P. PALANTONI
|
|
|
Frank
P. Palantoni
|
|
|
President
|
Exhibit
31.4
CERTIFICATION
I,
Peter
J. Anderson, certify that:
1. I
have
reviewed the Annual Report on Form 10-K of Prestige Brands International,
LLC;
2. Based
on
my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made,
in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on
my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The
registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in
Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal control
over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15(d)-15(f)) for the registrant and
have:
(a) Designed
such disclosure controls and procedures, or caused such disclosure controls
and
procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this report is being prepared;
(b)
Designed such internal control over fiancial reporting, or caused such internal
control over financial
reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated
the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by
this
report based on such evaluation; and
(d) Disclosed
in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The
registrant’s other certifying officer(s) and I have disclosed, based on our most
recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
a) All
significant deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) Any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the registrant’s internal control over financial
reporting.
|
Date:
June 14, 2006
|
/s/
PETER J. ANDERSON
|
|
|
Peter
J. Anderson
|
|
|
Chief
Financial Officer
|
EXHIBIT 32.1
CERTIFICATION
OF PRINCIPAL
EXECUTIVE OFFICER
PURSUANT
TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
I,
Frank
P. Palantoni, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of Prestige Brands Holdings, Inc. on Form 10-K for the year
ended March 31, 2006 fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
applicable, and that information contained in such Annual Report fairly
presents, in all material respects, the financial condition and results of
operations of Prestige Brands Holdings, Inc.
|
/s/ FRANK
P. PALANTONI
|
|
Name:
Frank
P. Palantoni
|
|
Title:
President
and Chief Executive Officer
|
|
Date:
June
14, 2006
|
EXHIBIT 32.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER
PURSUANT
TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
I,
Peter
J. Anderson, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of Prestige Brands Holdings, Inc. on Form 10-K for the year
ended March 31, 2006 fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
applicable, and that information contained in such Annual Report fairly presents
in all material respects the financial condition and results of operations
of
Prestige Brands Holdings, Inc.
|
/s/ PETER
J. ANDERSON
|
|
Name:
Peter
J. Anderson
|
|
Title:
Chief
Financial Officer
|
|
Date:
June
14, 2006
|
EXHIBIT 32.3
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT
TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
I,
Frank
P. Palantoni, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of Prestige Brands International, LLC on Form 10-K for the year
ended March 31, 2006 fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
applicable, and that information contained in such Annual Report fairly presents
in all material respects the financial condition and results of operations
of
Prestige Brands International, LLC.
|
/s/ FRANK
P. PALANTONI
|
|
Name:
Frank
P. Palantoni
|
|
Title: President
|
|
Date:
June
14, 2006
|
EXHIBIT 32.4
CERTIFICATION
OF CHIEF FINANCIAL OFFICER
PURSUANT
TO
18
U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
I,
Peter
J. Anderson, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of Prestige Brands International, LLC on Form 10-K for the year
ended March 31, 2006 fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as
applicable, and that information contained in such Annual Report fairly presents
in all material respects the financial condition and results of operations
of
Prestige Brands International, LLC.
|
/s/ PETER
J. ANDERSON
|
|
Name:
Peter
J. Anderson
|
|
Title:
Chief
Financial Officer
|
|
Date:
June
14, 2006
|